PARIS (The Deal) -- France's Alstom on Wednesday gave its tentative approval to General Electric's (GE - Get Report) binding $13.5 billion offer for its power unit but said a deal may have to wait until the end of May, leaving Siemens (SI) time to conduct due diligence and make a rival bid.
Fairfield, Conn.-based GE is offering a total $16.9 billion for Alstom's thermal power, renewables and grid operations, including the $3.4 billion of cash on the unit's books. Based on enterprise value, the deal prices the operations at 7.9 times pro forma Ebitda for the financial year ending September 2013, the U.S. bidder said.
GE's enterprise value and multiple was at odds with Alstom's calculations due to differences in the accounting of debt and cash at the unit. The French target calculated the offer at an enterprise value of 11.4 billion euros ($15.74 billion) and 12.2 times fiscal 2013 Ebitda, though it agreed with the total bid price of $16.9 billion.
"The combination of the very complementary energy businesses of Alstom and GE would create a more competitive entity to better service customer needs," Alstom CEO and chairman Patrick Kron said in a statement. "The proposed transaction would allow Alstom to develop its transport business as a standalone company, with a strong balance sheet."GE said it expects the acquisition to deliver $1.2 billion in annual cost savings within five years and to add 8 cents to 10 cents to earnings per share in 2016. Alstom said it would use proceeds from the sale to pay down its roughly 4.6 billion euros of debt, return cash to shareholders and invest in its rail unit. The sale would dramatically reduce the French engineering group's size, cleaving off the source of about 70% of its 20.3 billion euros of annual revenue. Alstom's transport unit, which makes and services locomotives, train carriages and signaling equipment for railways, posted sales of 5.5 billion euros in the 2013 financial year. It employs 27,000 people. Alstom and GE have been in deal talks for months, and the French company had been preparing to announce a deal within days before Siemens declared its interest, according to a source with knowledge of the situation. Siemens, of Munich, Germany, said late Tuesday that its management and supervisory board had decided to make an offer to Alstom but only if it was afforded "access to the company's data room and permission to interview the management during a period of four weeks." Alstom acquiesced. "Siemens will have a fair access to information needed to make, should it decide to do so, a binding offer," the French company said. Siemens had earlier suggested to Alstom that it will offer rail assets, including high-speed and freight train manufacturing operations, in return for Alstom's energy unit. That plan was met with a cool reception by Alstom, which needs cash to service debts and is unimpressed by Siemens' rail technology, which it thinks is inferior to its own. Siemens statement didn't specify whether an offer for the whole of Alstom or just a unit was under consideration, and a representative declined to comment. The German engineering giant is also in talks with Rolls-Royce Holdings plc to buy its power generation assets, the British company said in a statement Tuesday. That deal could be worth as much as 1 billion pounds ($1.7 billion) and would add about $1.8 billion of turbine and compressor sales to Siemens' power unit. It would, however, be a meager consolation to losing out on Alstom and to seeing GE, which is Siemens' biggest rival in turbine production, establish itself as a major European power equipment force. Alstom's decision to delay an agreement with GE will mollify elements of the French government, including industry minister Arnaud Montebourg, who initially suggested that he preferred a deal with Siemens. GE CEO Jeff Immelt, Siemen CEO Joe Kaeser and chairman Gerhard Cromme all met with French President Francois Hollande and Montebourg on Monday as the French state sought assurances that a sale of Alstom's power unit would not threaten local jobs or the independence of France's nuclear industry. Hollande said Monday that he will judge the two offers "on a single criteria: which is the most favorable to the creation of activity in France and French employment." GE's offer for Alstom offer includes commitments to increase the number of employees in France, according to a letter by Immelt to Hollande dated Tuesday. The CEO has promised to establish the headquarters for GE's international electrical grid, hydroelectric, wind energy and steam turbine operations in France and provided assurances regarding Alstom's nuclear energy activities. He also said he would consider the sale of Alstom's wind energy activities, welcome French investors in GE's enlarged hydroelectric operation and was pondering wider business alliances with the parts of Alstom he isn't buying. "We are ready to study all offers from French investors for the onshore and offshore wind turbine activities of Alstom," Immelt wrote in the letter to Hollande. "I can also confirm ... we are studying with Alstom the possibility to create a joint venture with GE's global signaling activity." Immelt also offered a seat on GE's board to "a first class manager of a French business." GE's Immelt was in a bullish mood on Wednesday, describing talks with the French government as productive. "We think we've got a good deal and it's going to be executed," he said on a call with journalists. The credibility of GE's confidence was bolstered by its claim to have the support of Alstom's biggest shareholder, Bouygues SA, a French industrial conglomerate controlled by the Bouygues family that owns 29% of Alstom. Alstom said Bouygues had committed to not sell its shares until it had received the recommendation of the Alstom board and that it would support the board's position. Alstom will establish an independent committee to review the bids. It will be led by Jean-Martin Folz, the former chairman and CEO of PSA Peugeot Citroen, and is due to give its opinion by June 2. Shares in Alstom traded Wednesday at 29.41 euros, up 2.41 euros, or nearly 9%, on their Monday close. The shares have gained 21% since their close on Wednesday, the day before talks with GE became public.