Siemens' Alstom Proposal Struggles to Gain Traction

NEW YORK (The Deal) -- The board of Alstom is likely to opt for General Electric's (GE) cash offer for its energy division unless a rival all-asset bid for the unit from Siemens  (SI) is improved, according to two sources with knowledge of the situation.

Alstom said Sunday, April 27, that it is considering its options and expects to make an announcement between now and Wednesday morning. GE's offer, which emerged on Thursday, is both the only firm bid and the only one to answer Alstom's preference for cash over Siemens' offer of its high-speed and freight rail divisions, both of which are of little interest to the French industrial conglomerate.

"Siemens' high-speed train technology is three years behind Alstom's, so there is no use for it," said a source who asked not to be named as talks are ongoing. "Its freight trains are something that not even Deutsche Bahn wants so there isn't much of interest there either."

Details of GE and Siemens' offers have not been made public. Fairfield, Connecticut-based GE's offer values Alstom's energy business at about $13 billion, according to a source who confirmed earlier reports.

The CEOs of the rival bidders are scheduled to meet French President Francois Hollande on Monday to discuss their bids. Martin Bouygues, chairman of Bouygues, which owns 29.4% of Alstom and was reported to be close to agreeing a deal with GE, is also scheduled to meet the president on Monday.

GE CEO Jeff Immelt, who was due at the Elysee Palace at 9:30 a.m., has found himself under pressure to address political concerns surrounding his bid after French politicians, including Industry Minister Arnaud Montebourg, appeared to line up against the U.S. giant's maneuver.

"French companies are not prey," Montebourg said in an interview on French radio station RTL, adding that he refused "to accept the inevitability" of a sale of Alstom's electricity division to General Electric. The comments followed a meeting Sunday night between Hollande, Montebourg, France's recently appointed Prime Minister Manuel Valls and Energy Minister Segolene Royal.


Montebourg had been due to meet Immelt on Sunday but postponed the meeting until Monday. Despite wariness surrounding the sale of Alstom's energy unit to GE, the French government is not opposed to a deal so long as the U.S. buyer offers sufficient guarantees of French employment and that manufacturing operations will remain in France, according to a person familiar with the government's thinking. Alstom's energy unit has about 9,000 French employees.

Siemens' offer could still be more palatable to French politicians, who are favorably disposed to the creation a European energy and rail champions and because Siemens would not seek control of Alstom's nuclear energy division. The German company recently announced that it was pulling out of the nuclear energy sector, after the German government announced the closure of Germany's nuclear plants in the wake of Japan's Fukiushima Daiichi nuclear disaster in 2011. Siemens CEO Joe Kaeser and Chairman Gerhard Cromme are scheduled to meet Hollande and Montebourg at 6:00 p.m. on Monday.

Hollande's government has made a habit of attempting to influence corporate decision making, but has had limited success. Montebourg was an outspoken supporter of Bouygues' bid for Vivendi's mobile phone unit but was ignored by the French conglomerate, which earlier this month sold the business to Numericable Group and its backer Altice for 17 billion. In 2012 he threatened to nationalize the French assets of steel maker ArceloMittal if it shuttered smelters in eastern France, before accepting the closure.

The French state has the right to block the sale of assets that it considers to be of national interest. Montebourg has written to Immelt to confirm that the acquisition of Alstom's energy division, and in particular its nuclear operations, would require state approval.

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 capital injection by the state and French lenders.

GE and Alstom have been in talks about a deal for months, it emerged on Thursday. The U.S. bidder has already conducted due diligence on the assets and has made a binding offer, sources said.

The offer may still have to be improved following the emergence of Siemens' competing bid and could go as high as $14 billion, according to a Paris-based fund manager who asked not to be named.

"A lot will depend on what [Martin] Bouygues is willing to accept," he said. "If he wants a quick deal and is happy with GE's offer then this could be over fast."

Bouygues bought the government's 21% stake in Alstom in 2006. Bouygues in February wrote down 1.4 billion of the value of its investment in Alstom, a month after Alstom cut forecasts for free cash flow and profitability because of weak orders for its power equipment.


Alstom's energy division accounts for about 70% of its 20.3 billion of revenue.

Alstom's rail unit has been performing better, posting record sales in 2013, and was recently earmarked by the company for possible partial sale or IPO. Alstom needs cash to service its 4.6 billion of debt, including 722 million of bonds maturing before September. The outlook on its long-term bonds was downgraded from stable to negative by Moody's Investors Service in January, which ranks its debt at Baa3, one notch above junk.

GE and Alstom declined to comment on their negotiations. Siemens declined to comment beyond its statement of Sunday in which it said it had "submitted a letter to the board of Alstom to signal its willingness to discuss further strategic opportunities."

Shares in Alstom have been suspended since Friday at the request of the company. They last traded on Thursday, April 24, at 27, up 4.41, or just under 20% on their Wednesday close, equating to a market capitalization of 8.3 billion. Despite that gain the stock remains down almost 13% over the past twelve months and almost 43% down over five years.

Siemens shares in Frankfurt were down 1.73, or 1.8%, at 94.10. The company has a market value of 82.9 billion. GE's equity, as of Friday, was worth $266.7 billion.

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