Seven weeks after General Electric Co. offered to buy Alstom SA (ALO)’s energy assets, its biggest rival Siemens AG (SIE) bounced back with a bid intended to seduce the board -- and the French state -- with the added financial support of two of Japan’s largest industrial companies.
Siemens Chief Executive Officer Joe Kaeser made a counteroffer yesterday, seeking to carve up the French manufacturer’s energy and transportation assets with Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) The overture seeks to trounce General Electric Co.’s original $17 billion proposal to buy Alstom’s energy unit, in what would be GE CEO Jeffrey Immelt’s biggest deal that builds a bridgehead in the country neighboring his closest rival.
While Alstom helped broker the GE plan and has supported the U.S. company, Siemens has sought to play up its appeal with governments in France and Germany that are keen to back the creation of leading European companies in fields such as energy and transportation. While Kaeser said his plan would keep large parts of Alstom intact and create jobs, enlisting the support of the two Japanese manufacturers complicates his proposal.
“It’s not a simple decision,” said Ingo-Martin Schachel, an analyst at Commerzbank AG in Frankfurt, who advises investors hold Siemens shares. “While Siemens’ offer might seem more attractive financially, it is also more complex.”
Siemens is offering 3.9 billion euros ($5.3 billion) for Alstom’s gas turbines, while Japan’s Mitsubishi Heavy and partner Hitachi would pay 3.1 billion euros for stakes in the steam-turbine, power-grid and hydro businesses, they said yesterday. Mitsubishi also offered to buy as much as 10 percent of Alstom, a stake valued at about 900 million euros.
The German manufacturer would be willing to combine its entire rail business with Alstom’s to create a new leading European company in that market, Siemens Chairman Gerhard Cromme said in Paris today, after he, Siemens CEO Kaeser and Mitsubishi Heavy CEO Shunichi Miyanaga met with French President Francois Hollande.
The German company, based in Munich, said the combined value of its proposals tops GE’s bid by about 1 billion euros as it includes more assets. Siemens pledged to create 1,000 additional jobs in France, matching a similar promise from GE.
“Our offer is more attractive from a financial, industrial and political perspective,” Kaeser told journalists. “It retains the Alstom brand to a significant extent and all-in-all is about a billion euros higher.”
To support their case, Kaeser and Miyanaga are also scheduled to speak at the economics affairs committee of France’s National Assembly today. Immelt made a rare appearance by a U.S. corporate leader before the same committee last month, saying he would protect jobs and the nation’s industrial base.
Still, Alstom’s initial assessment of the Siemens plan is that it’s too complex, requiring a mix of cash and assets and the creation of joint ventures and the separation of existing operations, said two people familiar with the matter. The French company doesn’t view a separation of the gas and steam turbines business as viable, said the people, who asked not to be identified because they spoke on condition of anonymity.
Both Siemens and GE are interested in Alstom’s installed base of equipment and the lucrative service business that accompanies it. A deal would help Fairfield, Connecticut-based GE overtake Siemens’s steam and gas turbine market share, according to analysts at Societe Generale. (GLE) Siemens offered to base its gas service business in France as part of the deal.
Alstom’s committee of independent board members will examine the joint offer by Siemens and Mitsubishi Heavy in the coming days, the French company said yesterday.
GE won’t engage in a bidding war for Alstom, said spokeswoman Deirdre Latour. GE previously has said it’s flexible on the terms of its bid, signaling a willingness to make concessions in negotiations with the French government.
GE last month extended its deadline for Alstom to decide whether to accept its offer to June 23 after Siemens demanded an equal opportunity to decide whether and how to bid.
Siemens said yesterday it would only be able to discuss a potential combination of its train assets with Alstom’s business in that area once the potential energy transaction is completed to preclude antitrust complications.
While Mitsubishi Heavy said it will offer to buy as much as 10 percent in Alstom from Bouygues SA (EN), the French shareholder yesterday reiterated that it wants to keep its current 29.3 percent stake.
Under the proposed deal, Mitsubishi Heavy would buy 40 percent of Alstom’s steam and nuclear turbines business to form a joint venture with the French company. Mitsubishi Heavy would also aim to hold 20 percent stakes in ventures combining the companies’s power grid and hydro businesses.
Mitsubishi’s offer addresses France’s demands that Alstom forges alliances to protect the sovereign nature of the country’s nuclear power industry. Mitsubishi said it would cooperate with Alstom on research and development, procurement, production and joint offers for turnkey projects.
“The joint venture structure will help solve some of the political concerns in France,” Commerzbank’s Schachel said. “The Siemens offer should certainly be considered realistically by Alstom shareholders.”
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