Last week, I pointed out some of the accretive benefits of the potential deal between industrial conglomerate General Electric (NYSE:GE), which, according to Bloomberg, is interested in Alstom (OTCPK:AOMFF), a company that operates in the power generation and transport markets. Although both companies have yet to confirm the deal or whether talks have ever taken place, rumors suggest that the estimated $13 billion deal was to be announced today (Monday, April 28). But that's looking more unrealistic.
Note, in last week's article, I came to General Electric's defense. The company was being attacked for (among other things) "spending too much" at a 25% premium for Alstom, a perceived loss-generating asset. In that article, I said:
"Although the $13 billion suggests more than a 25% premium to Alstom's current value, GE understands that if it were not for the Alstom's poor luck, it would have been forced to pay more. And don't discount the possibility that rivals like Siemens (SI) or even Honeywell (NYSE:HON) may have also been interested in Alstom, particularly Siemens, which has had ambitions of growing its presence in areas like Asia and Latin America, and beyond."
According to more reports, it turns out that I was right, if only partly. This morning, a Reuters report suggest that Alstom's German rival, Siemens, is in fact, looking to block the tie-up with General Electric. To counter General Electric's proposal, Siemens has "proposed a swap of assets."
The Reuters story also said that France's Economy Minister, Arnaud Montebourg, met with Jeff Immelt, GE's CEO, to discuss the future of Alstom. According to the article, Montebourg is prepared to block any deal he "considered unsuitable" in terms of the long-term interests of the French company, its employees and the economy. But are we talking about the same company?
It seems now that General Electric has shown some interest in Alstom, a company that was on the verge of collapse a decade ago, everyone is suddenly interested in preserving its value. For Siemens, I don't believe there is anything there other than chess-playing.
Aside from the asset swap, the Financial Times is reporting that Siemens wants to acquire Alstom's power businesses for itself. In return, Siemens is offering Alstom its high-speed train and locomotive units. And to "sweeten the deal," Siemens is ready to offer a "significant" amount of cash to Alstom shareholders. Now this brings us back to General Electric, which is (in my opinion) being hindered by the French government from executing a deal that Alstom clearly wants to happen.
It would seem that Minister Mounteborg is in favor of the Siemens offer after saying Siemens' interest would create "two European and world champions in the fields of energy and transport." But Mounteborg, who is known for "preserving" French assets, also has an interest in strengthening Alstom to become more viable in the area of transits.
And just to be clear, I don't believe the French government, which has used terms like "seeking alternatives to GE's bid," wants General Electric to take over the company. Nor do they want the perception of giving in to an American corporation. By contrast, Siemens would be seen as more "aligned," giving its proximity to France.
To that end, the French government, which has an interest in preserving French jobs, would much prefer a Siemens deal. This is because Siemens would be "perceived" as more caring about the French worker, thus less likely to eliminate any of the 18,000 workers currently employed by Alstom.
General Electric wants Alstom, which will be its largest-ever acquisition, to further its inorganic growth strategies. Given the rate at which Alstom's transport division has been winning orders, it seems like a well thought-out acquisition. For GE, following its recent 12% jump in industrial profits, along with the company's goal of extracting 70% earnings from industrial operations, paying $13 billion seems like a good investment. It fits into Immelt's strategy to focus more tightly on heavy industry.
Suffice it to say, this is not over. General Electric investors should want this deal to happen. And they should be angered, as GE appears to be, that the French government and a hated rival in Siemens are standing in the way.
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