Alstom Board Picks GE’s Bid Over Joint Proposal From Siemens And MHI


Alstom Board Picks GE's Bid Over Joint Proposal From Siemens And MHI French conglomerate Alstom has signaled the end of a heated bidding war for its energy assets. The company's board of directors has unanimously approved U.S.-based GE's $16.9 billion offer, which includes the establishment of an offshore wind joint venture. The proposal was running up against a combined bid by Germany-based Siemens and Japan-based Mitsubishi Heavy Industries (MHI).

The proposed GE transaction will still require several other steps, including works councils consultation, regulatory approvals and Alstom shareholder authorization. According to GE, the deal is expected to close in 2015.

Last week, GE updated its April 26 offer to Alstom. The U.S.-based company had been negotiating with the French government for weeks after officials initially rejected GE's bid and called for more job creation under the proposal and ‘a balanced partnership’ rather than a full acquisition.

GE says its updated bid includes a commitment to create 1,000 new jobs in France over the next three years. Furthermore, GE and Alstom will instead form three 50/50 joint ventures, including one in Alstom's offshore wind and hydro businesses.

Feng Zhao, a research director with Navigant Research, says the proposed joint venture "will definitely have an impact on the future outlook of offshore wind."

"The deal between GE and Alstom will create a real competitor for Siemens and the Vestas/MHI JV (which currently dominate the offshore wind sector) compared with either Alstom or GE pursuing the offshore wind business alone," Zhao says. "For an industry where reducing the cost of offshore wind energy is the priority at present, such a deal should be welcomed and regarded [as] a positive signal by the offshore wind sector."

He also notes that GE Power Conversion worked closely with Alstom to develop the French company's 6 MW Haliade direct-drive machine. "That knowledge will save a lot of time for GE to understand and master the product from the quality-control point of view," Zhao says.

Under the proposed trasaction, GE and Alstom will also hold a 50% stake in a global business combining Alstom Grid and GE Digital Energy, as well as create a 50/50 global nuclear and French steam alliance. The French government will hold a preferred share giving it veto and other governance rights over issues relating to security and nuclear plant technology in France.

In addition, GE has also signed a memorandum of understanding to sell its signaling business to Alstom for approximately $825 million. The signaling business is a provider of on-board and wayside signaling systems and communications solutions for the global rail industry.

"We will now move to the next phase of the Alstom alliance," says GE Chairman and CEO Jeff Immelt. "We look forward to working with the Alstom team to make a globally competitive power and grid enterprise. We also look forward to working with the French government, employees and shareholders of Alstom. As we have said, this is good for France, GE and Alstom."

Patrick Kron, chairman and CEO of Alstom, comments, "The combination of the very complementary energy businesses of Alstom and GE would create a stronger entity, best placed to serve customers globally and invest in people and technology over the long run." Should the GE transaction be completed, Alstom says it would refocus on its fully owned transport activities and on its energy alliances with GE.

Before making its decision, Alstom's board also reviewed a revamped proposal from Siemens and MHI. On June 17, Siemens and MHI submitted their joint bid and upped it shortly thereafter.

Under their revised proposal, the companies increased the cash contribution by $1.63 billion, raising it to about $11.1 billion, and boosted the total valuation of Alstom's energy business by approximately $500 million to $19.8 billion.

Siemens intended to acquire 100% of Alstom's gas business, including related service contracts. A Siemens spokesperson had also verified for NAW that the joint bid did include Alstom's wind energy business but did not provide further details. Meanwhile, MHI intended to buy a 40% stake in the combined steam, grid and hydro business of Alstom through one single holding company.

Alstom says its board "unanimously determined that this proposal does not adequately address the interests of Alstom and of its stakeholders."

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