June 23, 2014

GE wins battle for Alstom

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THE board of Alstom has unanimously approved General Electric's (GE) bid for its energy division after the French government agreed to purchase a 20% stake in the company from its lead shareholder, Bouygues, for around €1.7bn.

The 11th hour development gives the government command over 20% of voting rights and two seats on Alstom's board, allowing the state to exercise an immediate influence as the group's lead shareholder, and allaying its fears over the future of the company's activities in France. The government has 20 months to purchase the stake, either directly from Bouygues, or from the open market following a difference over price after Bouygues baulked at the government's insistence that it would only pay the market price.

"This is a way of organising ourselves in the face of globalisation," says French economy minister Mr Aranud Montebourg in an interview with French television. "It builds alliances rather than allowing France to become a giant shopping centre for foreign companies to come and prey on our companies."

Under the terms of the deal, GE will take over Alstom's global coal and gas-fired turbine operations, as it always hoped, and will form 50-50 joint ventures with Alstom in grid, renewable and nuclear turbine operations, the primary element of the bid which was revised. GE has also agreed to sell Alstom its signalling division for around €825m to strengthen Alstom's remaining transport sector and to enter into multiple collaboration agreements for GE locomotives outside of the United States. The companies will also collaborate over research and development, sourcing and manufacturing and commercial support in the United States.

The net cost of GE's bid is $US 10bn, and places a $US 3.5bn value on the stakes in the three joint ventures held by Alstom.

"For GE, the overall economics of the deal remain in tact," says Mr Jeff Immelt, GE chairman and CEO. "As we have said, this is good for France, GE and Alstom."

GE overcame a rival bid from a Siemens-Mitsubishi Heavy Industries (MHI) in which Siemens proposed acquiring Alstom's gas business for €4.3bn, while MHI would buy a 40% stake in the combined steam, grid and hydro business for €3.9bn. Siemens also offered to enter a 50-50 joint venture in signalling and mobility infrastructure.

However, in a statement Alstom said that the board unanimously concluded that the offer did not adequately address the interests of Alstom or its shareholders.

In a letter to employees Siemens' CEO Mr Joe Kaeser said he regretted that Alstom had not been open to Siemens' proposals but that the company would continue to focus on its restructuring measures to boost profitability. Kaeser was also quoted by German media that Siemens was ready to resume negotiations with Alstom and the French state if terms are not agreed with GE.

"We are still open for talks. The doors are open for Alstom and the French government," Kaeser said.

Completion of the GE transaction is now subject to works council consultation, merger control and other regulatory clearances. The deal is expected to close in early 2015.

Alstom says it will use the proceeds from the transaction to strengthen its transport business and energy alliances, as well as pay down debts and return cash to shareholders.

Alstom chairman and CEO Mr Patrick Kron also confirmed in an interview with France's Journal de Dimanche that he will step down in favour of a new management team following an unspecified transition period.

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