Once upon a time, the world was different. It seemed a much bigger place… distant lands remained undiscovered and many equipment manufacturers walked the Earth. How times have changed. The rapid spread of SARS has shown us just how small the world has become. Meanwhile, the number of equipment manufacturers continues to dwindle – as if hit by their own mysterious illness.

After months of speculation, Alstom finally announced that it had signed binding agreements to sell its small gas turbines

business and its medium sized gas turbines and industrial steam turbines business in two transactions to Siemens AG (see page 15).

The industrial turbine businesses being sold are:

  • the small gas turbines business (3 MW-15 MW) based mainly in the UK
  • the medium-sized gas turbines business (15-50 MW) based principally in Sweden
  • the industrial steam turbines business (up to 100 MW) with manufacturing sites in Sweden, Germany and the Czech Republic, and global customer service operations.

Alstom later announced that it had completed the sale of the small gas turbine business following receipt of a formal derogation from the European Commission under the EC merger regulation. The enterprise value of this transaction is W575 million. Siemens, however, will not integrate the small gas turbine business with its own businesses until formal merger clearance has been obtained from the European Commission in relation to all the industrial turbines businesses. The deal will have to overcome the usual European and US anti-trust laws but should be concluded well within the usual time frame of seven or eight months.

The sale of the businesses, which account for about 10 per cent of Alstom’s power sector revenues, will generate some W1.1 billion. Net cash proceeds to Alstom are expected to be about W950 million. Certainly Alstom got a good price for the division. As one Alstom spokesperson said: “We were initially expecting to get W700-900 million. So naturally we are satisfied with the price.” Siemens had waited a long time – in newspaper reports, Heinrich von Pierer, Siemen’s chief executive, spoke of a 13-year wait – and was prepared to pay over the odds to fill a gap at the lower end of its turbine range.

Siemens explained: “We will be getting small gas turbines (with ratings up to 50 MW), which were to date missing from our

portfolio. This will improve our train competence – that is the ability to supply customers with a drive and compressor as a

complete compressor train. Above all, we anticipate synergies in the combination of our products (compressors and gas turbines as well as industrial power plants) in terms of procurement and in the combining of our R&D activities. There are only minor overlaps within the steam turbines business.”

Up to now PG I (Siemens’ industrial power generation division) has only marketed one gas turbine in the 70 MW rating class from PG’s heavy-duty range. PG I manufactures steam turbines with

ratings of up to 150 MW. The decision to enhance its industrial range seems to signal a move to generate extra revenue from generation products in sectors outside the hard-hit power generation sector. The acquisition will improve Siemen’s prospects in the oil and gas industry. The expanded customer base will also include

municipalities and the chemical industry.

With the boom in the large gas turbine market fast becoming a distant memory, turbine manufacturers will have to continue to look outside their core sector for equipment sales. Alstom noted that “the power generation market has gone down by 50 per cent in the last year.” Days before announcing the sale, the company said that its power turbo-systems sector was facing a sharp downturn in the gas turbine market, a decrease in orders for steam power plants and a significant overcapacity. It said it was facing a reduction in employees of about 3000 mainly in France, Germany, Italy, Poland, Switzerland and the UK.

Patrick Kron, chairman and CEO of Alstom, said the industrial turbines transactions constituted a “key milestone” in strengthening its financial base. Its T&D division is also up for sale and the company expects this to be concluded by the end of the year to bring in a further W1.3-1.7 billion. But whether these sales will be enough to keep the company afloat remains to be seen. The Alstom Group has debts of around W5 billion and the power sector sell-off plans will only bring it halfway to clearing these debts.

So as Siemens continues to broaden its horizons, Alstom looks like falling off the face of the Earth, or at least ‘Planet Power’. By this time next year, I fear the world will look smaller still, and a few more species will have become extinct.

Junior Isles, Managing Editor & Associate Publisher