Siemens AG (SIE) said its joint bid with Mitsubishi Heavy Industries Ltd. for Alstom SA’s energy operations trumps a competing offer from General Electric Co. (GE), as the German manufacturer tries to win the backing of the board and the French state.
The Siemens-Mitsubishi offer values Alstom’s energy assets at 14.2 billion euros ($19.3 billion), compared with GE’s 12.35 billion-euro valuation for those operations, Siemens said in a presentation in Paris today.
The German-Japanese proposal opens the race for the French manufacturer and puts pressure on GE to sweeten its offer for Alstom’s energy assets. GE Chief Executive Officer Jeffrey Immelt unveiled his bid seven weeks ago as he tries to expand in Europe and win business from Munich-based Siemens, the region’s biggest engineering company.
Siemens CEO 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)
Siemens is offering 3.9 billion euros 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. Mitsubishi has approached Bouygues SA (EN) about acquiring a stake of as much as 10 percent in Alstom, a stake valued at about 900 million euros, CEO Shunichi Miyanaga said, adding that he wants the French state to also take a 10 percent stake in the French company to support the deal.
The German manufacturer would also 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, Kaeser and Miyanaga met with French President Francois Hollande.
Kaeser also told lawmakers in France’s National Assembly today that his bid would safeguard jobs and investment, three weeks after Immelt pitched his offer to the same audience.
“Our bid would strengthen Alstom and inject 7 billion euros in cash,” Kaeser said. “That would help to safeguard jobs and allow investment in research and development.”
The rare appearance of foreign CEOs before France’s National Assembly highlights how both sides are trying to win the backing of the French state, which is seeking to extract the best guarantees on jobs and energy independence.
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. The French government owns controlling stakes in two of Alstom’s biggest clients, the national power company and the state rail operator.
GE won’t engage in a bidding war for Alstom, spokeswoman Deirdre Latour said yesterday. 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.
Kaeser offered France 1,000 new jobs and 1,000 additional apprenticeships as part of the deal, with Mitsubishi promising to open a joint research and development center in France. GE has pledged it would add 1,000 jobs.
France is seeking further improvement in the bids, according to a government official, even as Kaeser said Hollande had expressed no such sentiment in today’s meeting.
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.”
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 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 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, 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.
The Siemens-Mitsubishi offer may fail to convince the Alstom board as it would break apart the company’s steam- and gas-turbine business, William Blair & Co. analyst Nick Heymann said in a Bloomberg TV interview.
“That’s really not viable since all turbines except those sold for coal and nuclear plants are sold bundled with gas turbines for combined cycle applications, and the servicing of those is also combined,” he said. “So breaking them apart reduces their critical after-market for service and sales.”
At the same time, 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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