Alstom endorses selling its energy business to GE, touts benefits of deal

The Alstom board of directors “is considering” a binding offer from General Electric (NYSE:GE) to purchase Alstom’s energy business, the France-based company said early April 30.

The board seemingly endorsed the offer from U.S.-based GE, but left the door open to third-party offers from Siemens or other entities.

The scope of the transaction includes the thermal power, renewable power and grid sectors, as well as corporate and shared services. With 65,000 employees, these businesses registered €14.8Bn in sales in fiscal year 2012-2013. That would equal roughly $20.42bn in U.S. dollars.

The proposed price is a fixed price representing an equity value of €12.35bn (U.S. $17.1bn) and an enterprise value of €11.4bn (U.S. $15.78 bn), according to the Alstom news release. That would appear to be higher than the price that had been reported in the $12bn-to-$13bn range for the GE offer in the financial press.

In its own press release, GE cited a $13.5bn enterprise value.

Should this offer be approved and completed, Alstom would refocus on its global transport activities. 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, Alstom said.

The Alstom board, acknowledging unanimously the strategic and industrial merits of this offer and having noted the publicly announced undertakings by GE, has decided to set up a committee of independent directors, led by Jean-Martin Folz, to review before the end of May the proposed transaction, taking into consideration all stakeholders interests including the French State. Alstom Chairman and CEO Patrick Kron and the committee will liaise with the representatives of the French State to consider their views.

Should the board conclude positively, the information and consultation of Alstom employees’ representative bodies will be conducted before entering into a definitive agreement.

The deal would be subject to various regulatory approvals and final approval would have to be submitted to shareholders.

Alstom hasn’t entirely ruled out third parties, such as Siemens

The prospective GE purchase of Alstom has been reported for several days in the financial press. Days ago Germany-based Siemens emerged as a possible rival suitor for Alstom. French government officials had also expressed some misgivings about Alstom’s energy business being sold to the U.S. conglomerate, GE.

On other offers, the Alstom board said:

• “In the context of this binding offer, Alstom may not solicit offers from third parties for the acquisition of all or part of its Energy business. It has however reserved the right to respond to unsolicited offers for its entire Energy business and engage in discussions with bidders demonstrating a serious interest that could lead to a superior offer for Alstom.”

•”If, after having recommended GE’s offer, following its review, the Board of directors were to support another transaction, Alstom would owe GE a break-up fee equal to 1.5% of the purchase price.”

• “The Board also reviewed a declaration of interest received from Siemens, regarding an alternative transaction. Siemens will have a fair access to information needed to make, should it decide to do so, a binding offer. [Siemens has said it wants the same level of access to Alstom financial information as GE.] This declaration will be reviewed in light of Alstom’s corporate interest and the interest of all stakeholders, in accordance with the commitments made.”

Alstom’s Kron commented: “The combination of the very complementary Energy businesses of Alstom and GE would create a more competitive entity to better service customer needs. Alstom’s employees would join a well-known, major global player, with the means to invest in people and technology to support worldwide energy customers over the long term. The proposed transaction would allow Alstom to develop its Transport business as a standalone company, with a strong balance sheet to capitalise on opportunities in the dynamic rail transport market.”

Alstom energy could be a natural fit with GE?

In its news release, Alstom said a GE-Alstom combination would have a lot to offer the international energy sector.

•In thermal power, Alstom and GE have complementary offerings in steam turbines and gas turbines technology. Alstom will add balance of plant and turnkey capabilities to enhance the combined entity’s power offerings;

•In wind power, Alstom is small in onshore wind with a competitive offering in offshore wind while GE is focused on onshore wind;

•In hydro power, Alstom is a prominent global player and GE is not present;

•In service, Alstom’s comprehensive product portfolio is a perfect match with the global presence of GE.

•In grid, Alstom and GE are complementary in the products and solutions they offer and in their geographic focus.

The proposed transaction would refocus Paris-listed Alstom on its transport activities and would provide Alstom Transport the financial strength to accelerate its development on a growing market with solid fundamentals driven by economic growth, increasing urbanization and environmental concerns.

GE: Deal would immediately help company earnings

In its own press release, GE said the deal would be “immediately accretive” to GE earnings.

General Electric also said that integration will yield efficiencies in supply chain, service infrastructure, commercial reach, and new product development to generate more than $1.2bn in annual cost synergies by year five.

GE also said there would be net growth in jobs in acquired businesses in France with remix to more engineering and manufacturing.

Jeff Immelt, GE Chairman and CEO, said, “This is a strategic transaction that furthers GE’s portfolio strategy. Power & Water is one of our higher growth and margin industrial segments and is core to the future of GE. Alstom, like GE, is a company built on engineering, innovation and technology. We respect and value the deep industry and technology expertise of Alstom employees and expect them to add to our proven track record of developing talent and leadership in France and globally.”

Immelt continued, “Alstom not only advances our strategic priorities and industrial growth, but is also expected to provide an excellent return on capital. Alstom’s businesses are very complementary in technology, operations, and geography to our power and grid businesses.

GE said today that France will be the center of its European power business with headquarters and centers of excellence here for its steam turbine, hydro, offshore wind and grid businesses. GE plans that its Belfort site would remain the center of excellence for 50 Hz gas turbines.


About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at