Regardless of how any of this plays out, General Electric's (NYSE:GE) bid for struggling French company, Alstom (OTCPK:ALSMY) will likely go down as one of the best corporate battles in the last 50 years. This is not just hyperbole.
Consider, not only does General Electric have to fight off German rival Siemens (SI), but the company, specifically CEO Jeff Immelt, has to play the role of a diplomat for the French government. And in the middle of all of this, GE has to pretend as if it's not in a bidding war with itself.
I say this knowing full well that Siemens has made a "counter-offer." Siemens has proposed an asset swap, offering to acquire Alstom's power businesses in return for its high-speed train and locomotive units. Aside from "getting in the way," it's also possible that Siemens was "urged" to enter the mix by the French government, which needed another bidder to get GE to up its price. And it worked.
For Siemens' efforts, the company is seen as protecting its turf. The French government was successful at squeezing an extra $4 billion from General Electric. Recall, the original bid for Alstom was for $13 billion. Although Alstom has a strong market position in the power generation and transport industry, some believed the $13 billion was already too high of a premium to pay. Now, GE is being scrutinized for overextending itself.
Last week, Alstom's board accepted a $17 billion all-cash offer. But the French government wanted Siemens to seal the deal. For the French government, the concern was related to job losses. Given Siemens' close proximity to France, it was believed that Siemens would be more "in-tune" with the French employment climate.
But Jeff Immelt met with the French government's finance minister and promised to hire more workers. Immelt also said the company will make France its global base for its steam turbine, electric grid, offshore wind and hydropower businesses. GE's concessions were only good enough to appease the French government for a few days. Now, negotiations are reportedly "ongoing."
Wednesday, the government insisted that GE should revise its bid for Alstom's energy division. Note, the energy division accounts for roughly 70% group revenue. Not only that, but the government is asking GE to hand over its freight train business to Alstom's remaining transport unit. That's not going to happen. It can't happen. Alstom, which was not in the best of health to begin with, understands that GE won't budge.
This latest maneuvering prompted Alstom management on Wednesday to plea for closure. Not only did they cancel their dividend, but the company's recent earrings revealed weakening fundamentals, such as a decline in orders and profits. Alstom desperately needs this deal to happen. But the company is being pawned by the French government, which is looking to protect its interests. And it's using Siemens to do it.
Siemens doesn't mind being used, as long as it gets a chance to delay the inevitable. Siemens is onboard with anything to stunt GE's progress. But the door is still left open for Siemens to show that it is serious about its counter-offer. Siemens stands to become one of the world's largest manufacturers of equipment for power plants and electric transmissions. Plus, its train assets would form a France-based rail industry leader, bringing together the German company's ICE high-speed trains with Alstom's iconic TGV. This is what the French government hopes to see.
But General Electric knows what it is up against. While the company has been saying all of the right things, it knows Alstom's value has dropped almost 40% in the trailing 12 months. Immelt is doing his job diplomatically, and shows that he is willing to listen and renegotiate. But patience has its limits. I'm not suggesting that GE should walk away from Alstom. But GE also has to show that it is not a pushover. It has already gone back to the well once. It should not have to do it again.
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