GE Faces EU Hurdle for Alstom Bid, Offers Concessions - Analyst Blog
Industrial goods manufacturer General Electric Company GE received a temporary jolt when European Union (EU) antitrust regulators suspended the review process of its takeover bid of French conglomerate Alstom’s energy assets. While the official company spokesperson cited procedural formalities and the need for additional information as reasons behind the temporary suspension of the mandatory investigative process, the events sent this Zacks Rank #5 (Strong Sell) stock into a tizzy.
In order to save the 12.4-billion-euro ($13.83 billion) deal – arguably the biggest in the company’s history, management has even decided to walk the extra mile and offered some concessions, although preserving the deal economics and its strategic value. The desperation also creeps from the huge expectations from the transaction, the unnecessary delay of which has led to uncertainties among employees and investors as a whole.
The EU scrutiny was initiated in February this year to consider the probable implications and competitive environment from the proposed acquisition of Alstom’s energy business by rival General Electric. The transaction will likely give a competitive advantage to General Electric against other manufacturers of heavy-duty turbines for gas-fired power plants, namely Siemens AG and Mitsubishi Heavy Industries Ltd.
Earlier, in June last year, General Electric won the unanimous approval of Alstom’s board to acquire its energy assets, followed by the French Socialist government approval. The French government agreed to acquire 20% stake in Alstom from its leading stakeholder Bouygues. Concerned about preserving France’s energy independence, the government ownership in Alstom was stipulated by Paris as a non-negotiable demand. The approvals marked the end of a two-month-long skirmish involving intense political negotiations, bids and counter-bids between General Electric, Siemens and Mitsubishi.
With the delay of approval from the EU antitrust regulators, the deal is likely to miss its current deadline and is expected to close later in the year. General Electric expects operational synergies from the Alstom deal to add between 6 to 9 cents in earnings per share in 2016. However, unless there is an immediate end to the suspension of the review process, speculations are rife that the deal could fall flat like General Electric’s failed takeover bid of Honeywell International Inc. HON. This could eventually lead to further erosion in General Electric share prices. Meanwhile, some other stocks that look promising in the industry at the moment include Capstone Turbine Corp. CPST and AO Smith Corp AOS, both carrying a Zacks Rank #2 (Buy).
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