PARIS --
Siemens AG proposed French rival Alstom SA a deal to swap train and
energy assets to beat an offer from General Electric Co., according to
people familiar with the matter.
Under the plan, Alstom would get some of Siemens’s
transport assets and an additional cash payment in exchange for its
power business, the people said, asking not to be named as the matter is
not public. Siemens is willing to match or beat the financial terms of GE’s binding offer — which values Alstom at about $13 billion — and make guarantees for jobs, management positions and locations, they said.
To defend GE’s offer, Chief Executive Officer Jeffrey
Immelt will meet French President Francois Hollande and Industry
Minister Arnaud Montebourg today. Alstom, whose board met yesterday to
examine both offers, said it’s continuing to review its options and will
make an announcement no later than the morning of April 30.
A deal between Siemens and Alstom would create two
leading European entities in the energy and train industries and help to
address concerns by the French government regarding potential job cuts
with GE’s proposal. A tie-up of Alstom with GE is likely to have fewer
workforce and product overlaps than the German offer and face less
opposition from European regulators.
Alstom’s management is currently leaning toward the GE
offer, which would see the U.S. company buying its energy assets,
representing more than 70 percent of sales, the people said. The French
government currently prefers the Siemens blueprint, two of the people
said.
Industrial Heritage
Alstom is of strategic importance for France and the
government wants to examine all the options, Montebourg said. He said
Siemens’s proposal would make the German company an energy champion and
Alstom a transport champion. Alstom and Siemens both manufacture
high-speed trains, which operate under the respective TGV and ICE
brands.
While the French state has no direct stake in Alstom,
it is keen to preserve a company with a market value of 8.3 billion
euros ($11.5 billion) and considered a crown jewel after the state saved
it from bankruptcy a decade ago.
The government is ready to “preserve the interest of
France’s industrial base,” Montebourg said. French President Francois
Hollande said yesterday he is meeting with Montebourg, Prime Minister
Manuel Valls and Energy Minister Segolene Royal to discuss the
situation.
Rebounding Economy
Alstom jumped as much as 18 percent on April 24 after
Bloomberg News reported on the talks with GE; the shares were suspended
on Friday. Alstom said yesterday it asked for its shares to continue to
be suspended.
A transaction with GE would give the Americans control
of Alstom’s technology for power transmission and power plant
maintenance as Europe’s economy starts to revive. It would be a rare
example of a major French company being taken over by a U.S. rival.
GE is emphasizing its Alstom offer has a better chance
of completion because talks with the French company are more advanced
than with Siemens and it has conducted due diligence and signed a
non-disclosure agreement, according to people familiar with the matter.
GE’s board has already signed off on the binding offer, which has been
presented to Alstom, the people said.
Product Overlaps
The U.S. company is also stressing that its bid has
fewer workforce and product overlaps than the German proposal, so there
would be fewer job cuts, said the people. GE’s offer also has less
overlap in their grids and steam-turbines businesses, they said. A
combination of Siemens and Alstom energy and train assets could require
more significant restructuring and cost cuts, they said.
GE’s offer for the Alstom’s energy business would
value the entire company, excluding debt, at about $13 billion, the
people have said. Siemens yesterday said it’s willing to discuss
“strategic opportunities” with Alstom as an alternative to a GE deal,
declining to comment further. Siemens would also consider a straight-up
purchase of Alstom’s energy assets comparable to GE’s proposal, one of
the people said. GE and Alstom declined to comment.
An asset swap would see Alstom ending up with
Siemens’s ailing train business. Profit at Siemens’s six billion-euro-
revenue transportation business has been burdened by 356 million euros
in charges relating to delayed train deliveries in Germany since 2011.
Train Charges
In contrast, Alstom’s transport business, which makes
products ranging from signalling equipment trams to regional trains and
high-speed long distance locomotives, has been reporting rising sales
and profitability.
The transportation unit has constantly dragged
Siemens’s operating performance down, Societe Generale analyst Gael de
Bray has said. Increasing competition from Chinese suppliers and
constrained public spending in Europe will make it difficult to boost
margins, he said.
Alstom’s power business, also including highly
profitable thermal services to maintain and upgrade plants as as well as
hydro and steam turbines, could help boost Siemens’s customer base and
sales. At its energy business, Siemens is cutting 1,400 jobs
in Germany after gas turbines demand slumped in Europe. Gas-fired plants
are struggling to compete with wind and solar generation
that gets preferential access to the grid, and coal-fired stations that
benefited from a slump in the cost of carbon permits needed to burn the
fuel.
Siemens Review
While cutting jobs at its Berlin turbine factory,
Siemens has added more than 1,000 positions at its plant in Charlotte,
North Carolina as the shale boom drives demand for gas turbines in North
America. Faced with falling demand and prices for turbines and
power-transmission gear, Alstom is also cutting 1,300 jobs at its
support function and boiler division, and hundreds of positions at its
rail division.
The time of a potential deal coincides with the
culmination of a strategy review at Siemens by CEO Joe Kaeser. The
167-year- old company, which uses its peers’ earnings as a benchmark,
has lagged profitability at GE for at least 24 years, according to data
compiled by Bloomberg.
Kaeser will present his review findings on May 7.
Siemens has faced analyst and investor criticism for the unwieldy scope
of its 60 business units and Kaeser has said he plans to focus the
company’s business “along the electrification value chain.”
Copyright 2014 Bloomberg
http://www.renewableenergyworld.com/rea/news/article/2014/04/siemens-proposes-technology-swap-deal-with-alstom-to-rival-ges-offer
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