GE Alstom

GE chief Jeff Immelt has expressed confidence that his company’s $17bn “binding” offer for Alstom will win over both the French power giant’s shareholders and the French government, but rival Siemens remains in contention.

Immelt told the Paris press, “We think we’ve got a good deal and it’s going to be executed. We have had good, productive two-way dialogue this week with the French government. We think net employment in France will grow around the Alstom assets.”
GE Alstom
The GE (NYSEGE) chief executive’s reference to employment could prove critical as Francois Hollande’s French government have been concerned about the breakup of the company which employs 18,000 people nationally and is seen as a strategic industrial asset.

Alstom (Euronext: ALO) says it would review and decide on GE’s offer by the end of May.

However early Wednesday morning, Germany’s Siemens (NYSESI) reduced any complacency GE might have, with a sweetened offer for Alstom SA’s energy divisions.

The Wall Street Journal reports that Siemens is now offering Alstom to swap its long and short-distance train operations and cash of up to $15bn in return for the French company’s energy divisions. In a proposal Siemens sent to Alstom at the weekend, Siemens initially offered only its high-speed train operations in the swap.

For its part the Alstom board said it recognised “unanimously the strategic and industrial merits of this offer” and had decided to set up a committee of independent directors to review the proposed transaction before the end of May, taking into consideration all stakeholders interests including the French state.

It added that 29 percent shareholder Bouygues had committed not to sell its shares until the deal had won final approval of shareholders.

The agreement means Alstom cannot solicit offers from third parties to purchase all or part of its energy business but can respond to unsolicited offers for the entire energy arm. If it recommends GE’s offer, Alstom would pay a break-up fee of 1.5 per cent of the purchase price if it then backs another offer.

GE said, “If this review concludes positively, an exclusivity period beginning no later than June 2 will be granted.” After that the next steps will include Works Councils consultation, approval from Alstom’s shareholders, and clearance by regulators.
Kron
Patrick Kron (pictured above), the chairman and chief executive of Alstom, said: “The combination of the very complementary energy businesses of Alstom and GE would create a more competitive entity to better service customer needs. Alstom’s employees would join a well-known, major global player, with the means to invest in people and technology to support worldwide energy customers over the long term.”

President Francois Hollande has said he has no preference on the bidder but wants “what is best for jobs”. While the more outspoken Industry Minister, Arnaud Montebourg, has asserted a preference for a European champion solution.

GE had a head start in the race for Alstom, having been approached to discuss a possible deal about three months ago, and it has been doing due diligence since then.

Despite the poor state of the EU market, particularly in thermal power, only 33 per cent of Alstom’s sales now go to Western Europe, and in the long term GE sees a bright future for power generation and management, as demand for electricity grows in emerging economies.

If GE successfully concludes a deal with Alstom and France, a final stumbling block may prove to be the European Commission competition regulators.

Nigel Coe, an analyst at Morgan Stanley, told the Financial Times the market for servicing power plants is likely to be a focus of regulators’ attention, as the deal would bring together the company with the largest capacity of installed generation capacity, GE, with the second-largest, Alstom. In new plants, however, the concerns are likely to be much less severe.

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