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Siemens Ties Up With Mitsubishi Heavy for Alstom Bid

Stocks in this article: GE

PARIS (The Deal) -- Germany's Siemens will team with Japan's Mitsubishi Heavy Industries Ltd. to bid for Alstom SA's energy business, joining forces to counter a 11.4 billion euros ($15.4 billion) offer from General Electric (GE).

The partnership, announced Wednesday, adds a new twist to the battle for control of the French company's turbines and power grid operations, which are seen by both sides as critical to gaining the necessary economies of scale in the European market for equipment used by power utilities.

"MHI [Mitsubishi] has been invited by Siemens to join forces and we firmly believe that we can substantially contribute to a partnership solution for Alstom which will create value for all parties involved, including the country of France," Mitsubishi President and CEO Shunishi Miyanaga said in a statement.

Siemens and Mitsubishi gave no details of how the partnership would operate or what form their offer would take but promised to submit a bid to the Alstom board by June 16, in line with a timetable established in May.

The partnership could serve to break up Alstom's turbine operations, with Siemens likely to end up with the gas turbine operations while Mitsubishi takes over the steam turbine and grid operations. That would allow Siemens to skirt likely EU antitrust issues linked to the dominant position that a combined Siemens and Alstom would have had in the European market for turbines.

It could, however, count against the German company's bid with the French government, which had been sold on the idea that Siemens' acquisition of Alstom would create a European energy champion.

It also casts further doubt on Siemens' initial plans for a predominantly non-cash deal that was premised on a plan to swap its train business for Alstom's energy operations. Siemens was already contemplating augmenting that offer with as much as 7 billion euros in cash, according to reports.

The idea of an asset swap had won the support of the French government, and notably Industry minister Arnaud Montebourg, who saw it as a means to establish Alstom as the undisputed European leader in the manufacture of trains and train equipment. Alstom's management was less keen on the swap as they felt that Siemens' train technology was inferior to their own, according to a company source.

Alstom makes about 70% of its revenue from its energy business, with 30% from the train and rail-equipment unit, in which Alstom competes with both Siemens and GE.

Alstom said at the end of April that is supports GE's cash offer but would wait to see what Siemens offered. Alstom CEO Patrick Kron in May warned that the uncertainty created by the offers for its power unit was hurting sales.

GE has been exploring its own partnerships, mainly to ease French government concerns over the future of some of Alstom's operations that are deemed strategically important to France.

GE has been in talks with French nuclear power group Areva SA and is considering a JV that would service Alstom's turbines used in French nuclear reactors. Separately, GE is also pursuing talks that could lead to the sale of Alstom's wind energy business and the introduction of an investment partner in the hydroelectric operation. GE CEO Jeffrey Immelt in late May told France's President Francois Hollande that he was "open to an investment by the French government in a business alliance."

GE has not elaborated on what that alliance might be but it is likely to center on co-investment in Alstom's wind energy or hydroelectric operations, according to a source with knowledge of GE's thinking.

GE's offer, coupled with employment assurances and a promise to create 1,000 new jobs in France, have won some favor with the French government, which had initially thrown its support behind a Siemens deal.

Alstom was bailed out by the French state in 2004, when former president Nicolas Sarkozy, who was then industry minister, negotiated a 4.4 billion euro capital injection by the state and French lenders.

GE's offer for Alstom's energy business runs until June 23.

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