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Alstom Studies GE Offer, Leaves Door Ajar for Siemens

Road signs indicate directions for deliveries to French power and transport engineering company Alstom and U.S. conglomerate General Electric, Belfort, France, April 27, 2014.
Road signs indicate directions for deliveries to French power and transport engineering company Alstom and U.S. conglomerate General Electric, Belfort, France, April 27, 2014.
Cash-strapped French engineering group Alstom said on Wednesday it would study a $16.9 billion offer from General Electric for its energy arm but left the door open for a rival bid from Germany's Siemens.

Alstom gave Siemens until the end of May to propose its own deal after the government of President Francois Hollande balked at the U.S. group's overtures last week, insisting any outcome must safeguard jobs at the one-time champion of French industry, while ensuring the nation's energy independence.

Yet GE remained ahead in the race to secure assets which would boost its position in producing steam turbines for power stations and technology for electricity grids. Economy Minister Arnaud Montebourg — who was furious when news of the deal emerged last week — softened his tone towards the U.S. group, which he said was “a serious company.”

“We have a good relationship with GE,” Montebourg told a parliamentary committee after Alstom confirmed in a statement it was reviewing the GE offer.

“We are ready to discuss alliances, not an absorption. We prefer an equal alliance,” he said, citing GE's 40-year-old CFM jet engine venture in France with a unit of Safran as a good example of Franco-U.S. cooperation.

GE said its all-cash offer for Alstom's thermal power, renewable power and grid businesses — valued at 7.9 times pro forma earnings before interest, taxes, depreciation and amortization (EBITDA) — was based on an enterprise value of $13.5 billion and $3.4 billion of net cash.

Alstom's power assets account for around 70 percent of annual turnover, which was 20.3 billion euros ($28 billion) last year.

Considered by many analysts too small to survive alone in the energy sector, Alstom said a GE deal would allow it to re-focus on transport including making TGV high-speed trains.

“Alstom would use the sale proceeds to strengthen its transport business and give it the means of an ambitious development, pay down its debt and return cash to its shareholders,” the group said in a statement.

Alstom shares, suspended since last week, were up 9.6 percent at 29.59 euros at 0940 GMT after trading resumed. They had halved in value over the last four years on concerns over its cash flow since the 2008 economic crisis hit order books.

GE Chief Executive Jeff Immelt said talks with the French government on his company's offer had been productive and expressed confidence that it would go through.

“We think we've got a good deal and it's going to be executed,” Immelt told reporters in Paris. “We think net employment in France will grow around the Alstom assets.”

Industry sources note Alstom is strong in steam turbines used by the nuclear industry, while GE is a top player in gas turbines. A deal would enable GE to expand into grid technology.

With the Alstom deal, GE expects its industrial businesses to contribute about 75 percent of company operating earnings by 2016, up from about 55 percent last year.

No soliciting

Alstom was bailed out by the French state in 2004 and relies heavily on orders from national rail operator SNCF and utility EDF. It employs 18,000 people in France, half of them in the power business, out of 93,000 worldwide.

Alstom said its board also noted a declaration of interest from Siemens on an alternative deal and that the German company would have access to information needed to make a binding offer.

It added that French group Bouygues, which has a 29 percent stake in Alstom, had promised not to sell its shares until the deal had won final approval of shareholders.

The agreement means Alstom cannot solicit offers from third parties to purchase all or part of its energy business but can respond to unsolicited offers for the entire energy arm. If it recommends GE's offer, Alstom would pay a fee of 1.5 percent of the purchase price if it then backed another offer.

Siemens said it had decided to make an offer provided it was given access to Alstom's data, as well as “permission to interview the management during a period of four weeks, to enable Siemens to carry out a suitable due diligence.”

Siemens declined to comment on Alstom's statement on the GE offer. German magazine Der Spiegel reported that Siemens had written to Alstom to complain about a lack of cooperation on the part of its chief executive Patrick Kron, who they said was not interested in direct talks.

Montebourg told parliamentarians his objections had halted what he called an over-hasty rush by GE and Alstom to clinch a deal. But he was more circumspect on how the government would seek to influence the review period for the U.S. offer.

He noted explicitly Alstom's promise that the review would take into account “all stakeholders' interests including the French state” and said it would examine a request by unions to raise its small 1 percent stake in the group.

However, he said the readiness of GE to leave under French control turbine assets vital to France's nuclear sector — which generates 75 percent of the country's power needs — meant France could not invoke strategic interests to block the deal.

Hollande, whose poll ratings are at record lows due to his failure to tackle unemployment stuck at above 10 percent, has said the government will place a priority on preserving jobs.

GE said on Wednesday that the takeover would boost its earnings immediately, predicting an additional 8-10 cents of earnings per share by 2016.

The U.S. group predicted that the integration would lead to efficiencies in supply chain, service infrastructure, commercial reach and new product development to generate more than $1.2 billion in annual cost savings by year five.

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