Alstom Picks GE Bid for Power Operations

PARIS (The Deal) -- France's Alstom has agreed to sell its power unit to General Electric (GE) for an enterprise value of 11.4 billion ($15.5 billion), before returning cash to the buyer in exchange for stakes in a handful of joint ventures and GE's train signaling unit.

The decision ends months of wrangling that GE pitted against a partnership of Siemens and Mitsubishi Heavy Industries and, at times, the French state. The French government on Friday gave its blessing to a revised GE offer after rejecting two earlier bids for failing to protect the country's strategic interests and Alstom's French workers.

Under the terms of the deal, GE will pay an initial 12.35 billion, excluding adjustments for cash and debt, for Alstom's generator manufacturing unit, renewable power operations and power grid operations. Paris-based Alstom will then pay 2.5 billion to re-acquire 50% stakes three joint ventures covering the the grid, renewable energy, and nuclear and steam turbine operations.

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The deal values the Alstom assets at 7.9 times their Ebitda for 2014, according to GE, or 13.8 times Ebit for 2014, according to Alstom.

"For GE, the overall economics of the deal remain intact," CEO Jeff Immelt said in a statement. "This transaction remains accretive in year one."

Alstom will also buy GE's train signaling operations, for an enterprise value of about 600 million, boosting its signaling sales by about 40%, or $500 million, and gaining access to the North American market. The companies will also explore opportunities to work together to bring Alstom's high-speed trains to the U.S. market.

"The original offer [from GE] is maintained but with the investments in the JVs and the purchase of the signaling business," Alstom CEO Patrick Kron told a conference to announce the deal on Monday morning. "The board voted 13-0 in favor of the GE offer."

Alstom said it will return some of the proceeds from the sale to shareholders, and could use some of the funds to finance new acquisitions. "We absolutely don't exclude that we will participate in some M&A opportunities as they arise," said Kron.

For GE, the acquisition gives it a ready-made platform to expand its turbine manufacturing operations in Europe. It also allows it to spend cash accrued overseas that it has been loath to repatriate to the U.S. where it would attract taxes. Siemens was equally determined to buy Alstom to bulk up its own turbine manufacturing business and keep GE from establishing itself on the German engineering group's doorstep in France.

Alstom wanted out of its power operations, and in particular its turbine manufacturing business, which had proven too small to compete with those of its two bidders. The French company's original plan was to sell its power operations outright, reducing its sales by about 70% but leaving it to focus on a more profitable train manufacturing and signaling business.

GE has been the favorite to win control of Alstom's power business since late April, when the French seller gave its tentative approval to an 11.4 billion offer from the Fairfield, Conn.-based conglomerate. Alstom, under pressure from the French government, held off giving formal approval until it had a chance to assess Siemens' offer.

The German company had initially offered a straight asset swap of its train operations for Alstom's energy business but was rebuffed by Alstom, which considers its own train technology superior to the Germans operations. The French government, which had championed the asset swap, on Friday, June 23, admitted that a combination of Alstom and Siemens train business was unlikely to get past European competition regulators.

Siemens turned to Mitsubishi to add cash to its bid. On Friday, Siemens lodged an offer of 4.3 billion for Alstom's gas turbine business, while Mitsubishi offered 3.9 billion for 40% stakes in the steam turbine, grid and hydro electricity businesses.

"The board has unanimously determined that this proposal does not adequately address the interests of Alstom," the French company said.

The sale to GE was finalized on Saturday, after France's industry minister Arnaud Montebourg on Friday said that the state would back GE's amended offer, including the creation of the three joint ventures and on the condition that France controlled a 20% stake in Alstom. That stake was secured Sunday, when Alstom's biggest shareholder, Bouygues, signed an option deal that hands the French state immediate control over 20% of Alstom, Bouygues previously had a 29% Alstom stake.

France will buy the stake over the coming 20 months at the market price, including a "standard discount on condition that the price is higher or equal to a theoretical price of 35," per share, the government said on Sunday.

Bouygues also agreed to support the state's nomination of two directors to Alstom's board.

The deal remains dependent on Alstom shareholders' approval and is expected to close in the first half of 2015.

Shares in Alstom traded Monday morning at 27.98, marginally lower than their Friday close. Shares in Siemens traded at 98.94, down 1.05, or just over 1%.

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