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Siemens, Mitsubishi Sweeten Alstom Power Offer

PARIS (The Deal) -- Siemens and Mitsubishi Heavy Industries on Friday improved their offer for Alstom's power unit, adding 1.2 billion euros of cash ($1.6 billion), proposing a signaling joint venture and simplifying the structure of post-deal joint ventures in an effort to see off rival bidder General Electric (GE - Get Report).

The new proposal includes a 400 million euros increase in Siemens offer for Alstom's gas turbine unit, taking its bid to 4.3 billion euros. The Munich-based company will also immediately launch a joint venture coupling its transport signaling operations with Alstom's equivalent unit and reiterated an offer to pursue a train manufacturing partnership.

Mitusbishi offered to increase its bid by 800 million euros to 3.9 billion euros in return for 40%, instead of 20%, of Alstom's power grid and hydro business, which it will buy alongside an unchanged 40% of Alstom's steam turbine business.

Mitusbishi's changes "will significantly simplify the implementation of the transaction, as this investment may now be undertaken through one single holding company, as opposed to three JV's as contemplated," the bid partners said in a statement.

The changes come just three days ahead of a deadline for Alstom to choose between its suitors.

Fairfield, Conn.-based GE on Thursday tinkered with its offer, adding a rail and nuclear energy alliance, joint ventures in renewable energy and power grid operations. It also offered to sell its signaling business to Alstom. GE CEO Jeff Immelt didn't put a figure on the new offer but it is sure to involve a reduction in GE's cash offer of 11.4 billion euros made on April 26.

The changes to the two offers follow weeks of behind-the-scenes talks between the bidders, French government ministers and Alstom. The dynamics of those talks explain much of the changes made.

GE's initial offer won the support of Alstom's board, which favors exiting its power unit and wants cash to invest in expanding its transport operations. The U.S. company failed, however, to convince the French government, which was concerned by the loss of control over strategic operations, in particular those linked to France's nuclear industry. The state also expressed concerns about the ability of a diminished Alstom to compete for large transport contracts, which often require significant financial guarantees, and the future of French jobs at the units GE would buy.

GE's changes on Thursday address those concerns. The new proposal would leave Alstom with a rump of power assets that would provide it with diversified and stable earnings and increased financial muscle. It also offers the option to quickly build up its signaling business, giving it economies of scale in one of the fastest growing transport-related activities, and access to the U.S. freight market through a transport partnership. GE reacted to the government's security worries by offering the French state a preferred share in the proposed nuclear alliance, giving the government a veto over strategic decisions at the unit.

Immelt will learn the extent to which his improvements have succeeded in winning over the politicians on Friday, when he meets France's President Francois Hollande. Hollande, who earlier this week told both bidders to improve their offers, is also due to meet with executives from Siemens and Mitsubishi on Friday.

The Siemens and Mitsubishi bid has enjoyed the public support of France's Industry Minister Arnaud Montebourg, though reports in the French press suggest that Hollande prefers GE's offer.

The bid partners had failed to convince Alstom of the merits of an offer that involves significantly less cash than its rival and appeared overly complicated. Increasing the cash component of the offer and simplifying the post-deal JV structure addresses both those issues. The new bid values Alstom's power unit at 14.6 billion euros, Siemens and Mitsubishi claimed on Friday.

The improved offers have left the French government in self-congratulatory mood. "The offers of the two sides keep on improving," French Prime Minister Manuel Valls told France Inter radio on Friday morning. "We have more meetings today to move towards a decision in conjunction evidently with Alstom, because it must ultimately decide."

Alstom said its board will meet by Monday, June 23, the same day that GE's offer expires, to decide its preferred bid. It declined to comment on either bid.

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