HomeWorld RegionsEuropeDeal or no deal for Areva T&D?

Deal or no deal for Areva T&D?

The T&D market is clearly in the ascendancy, and the future of the industry is looking bright, with governments, regulatory bodies and major industry players all focused on the development a grid system that can match the world’s changing generation and consumption landscape à‚— commonly referred to as the Smart Grid.

In Europe, for example, the main focus is on how to develop a grid that can accommodate renewable energy’s growing contribution to the region’s generation mix, and on the demand-side the role out of smart metering technology. While in the US, President Obama’s planned $4.5 billion investment into smart grids research has propelled this T&D technology into the limelight. Interestingly, in next month’s issue we will be exploring the impact of Obama’s ‘Smart Grid’ push, not only in the United States, but also on the European energy market.

At the moment however, there is one story that is dominating the headlines in the T&D industry (and beyond), and that is whether France’s state-owned nuclear power champion, Areva, will be forced to sell its profitable T&D business, Areva T&D, and if so to whom?

The reason behind the potential sale is that Areva needs cash to help plug an estimated €12 billion ($17 billion) funding gap between now and 2012. And since early May the group has come under pressure from the government, which indirectly owns a 93 per cent share in the company, to sell non-core assets to fund this heavy investment programme. According to estimates, the disposal of Areva T&D could raise up to €5 billion for the nuclear group.

However, Anne Lauvergeon, CEO of Areva, has resisted the pressure to sell, arguing that the cash flow from its T&D business is necessary to offset the capital intensive, long-term investment requirements of its nuclear business. Indeed, Areva would have made a loss last year had it not been for its T&D arm.

Commenting on a potential sale, Malavika Tohani, a research manager at Frost & Sullivan, said: “Given the strong position that the T&D division brings to Areva’s growth, its sale would not only have a big impact on its topline and bottomline but also affect exploitation of any future opportunity in this market.”

Areva T&D is a profitable business. It generated revenues of over €5 billion in 2008 and accounts for 38 per cent of total revenues. The division grew by 17 per cent in 2008 as compared to 2007. Clearly, Areva T&D is an attractive acquisition target, but who are interested?

Few will be surprised by the three main contenders as they are all major players in the electrical and power generation market à‚— Alstom, Schneider and Siemens. But who is most likely to be victorious?

Alstom and Schneider have the distinct advantage of being French. Further, Areva acquired the T&D business from Alstom back in 2004, and Patrick Kron, Alstom’s CEO has made it clear he would like it back. Schneider, on the other hand, is one of the leading companies for medium and low voltage equipment for electrical distribution. Acquisition of Areva T&D would not only help it enter the high voltage transmission market but also strengthen its footprint in the medium voltage market.

Siemens position may be the weakest because it remains on poor terms with Areva since its sudden withdrawal from their nuclear joint venture earlier this year and then entering into a partnership with the Russian nuclear energy firm Atomenergoprom. However, Siemens is in the process of consolidating its position in high voltage equipment, and the addition of Areva’s T&D business would give it access to a wider distribution network, manufacturing facilities and substantial share of the market, making it a force to contend with in the T&D market. However, considering that Areva T&D is a financial no-brainer no one should be surprised if other contenders asppear on the scene.

The final decision on whether or not Areva disposes of its T&D business rests with the French state. A decision is expected soon, but until then the industry waits with bated breath.

Kind regards,
Heather Johnstone
Senior Editor