GE Improves Alstom Power Bid, Siemens Follows Suit

Pulling the ball back in its court, General Electric Company (GE) made a strong comeback to counter the Siemens-Mitsubishi offer for Alstom’s energy assets and appease the French Government, by updating its offer to buy the French engineering group’s energy assets.

General Electric now proposes two 50:50 joint ventures with Alstom in grid and renewables, and a global nuclear and steam alliance.

The battle has recently picked up pace after weeks of negotiations, in deference to a Jun 23 deadline set by General Electric for Alstom. General Electric’s move is aimed at derailing a $9.5 billion competing bid by Siemens-Mitsubishi to acquire the French conglomerate’s selected segments in a complicated deal.

GE’s Amendments

While keeping the monetary element of the deal unchanged, General Electric refined its bid by including alliances in rail and nuclear technology. The new deal will allow Alstom joint control over some of its assets, replacing the previous plan of a straightforward takeover of its energy operations.

Tackling the government’s concerns on energy independence, the U.S. conglomerate has proposed a structure that combines the two companies’ nuclear and steam operations to create a Global Nuclear and French Steam Alliance. It also intends to give the government authority over licensing of Alstom’s nuclear steam turbine technology.

Further, the grid and renewable energy assets of the two companies would be merged in two separate France-based joint ventures, with each company retaining 50% stake in the combined operations. General Electric also offered to sell its rail-signaling operations to Alstom, making the latter primarily a train company.

Siemens- Mitsubishi Comeback

In response to General Electric’s revamped bid, Siemens and Japanese partner Mitsubishi Heavy Industries have reportedly amended their proposition. Per the new proposal, Mitsubishi would offer to buy 40% of Alstom’s grid, steam and renewables units instead of the initial 20%. Siemens would also offer to create a rail-signaling joint venture with Alstom.

Furthermore, Siemens gave a statement declaring that they had hiked the cash component in the Alstom bid to €8.2 billion, while the valuation of Alstom’s energy assets was increased by €400 million to €14.6 billion.

Joint Venture Versus Carve-up

On paper, the Siemens-Mitsubishi bid appears to value Alstom's energy assets nearly 15% higher compared with General Electric's proposal. But Alstom would receive only €7 billion in cash from them, versus €12.35 billion from GE, according to media reports.

The Siemens-Mitsubishi offer would involve forming three joint ventures with Mitsubishi and relinquishing Alstom's vital gas-turbines business to Siemens. On the other hand, General Electric’s improved plan allows Alstom to have a stake in its strategic operations, while also boosting its rail business.

Political Take

Till date, the French government has taken centre stage in this bid battle, with Alstom’s suitors trying to pacify the French politicians demanding job guarantees and concessions on energy independence.

The Socialist government considers Alstom to be its industrial jewel, and has extended its powers to block foreign takeovers in strategic sectors. Its primary concerns remain safeguarding of jobs and preservation of the nation’s industrial competitiveness.

Despite General Electric’s revised offer meeting many of the government’s concerns, some French politicians believe the two bidders are running at par. General Electric CEO Jeffrey Immelt is set to meet the minister later today in an attempt to clinch what would be its biggest purchase yet, while Siemens is leaving no stones unturned in order to avoid its main competitor setting shop in its own backyard.

General Electric currently holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include CLARCOR Inc. (CLC), Sumitomo Corporation (SSUMY) and Noble Group Limited (NOBGY). While CLARCOR sports a Zacks Rank #1 (Strong Buy), Sumitomo and Noble Group carry a Zacks Rank #2 (Buy).

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