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Summary

  • It's disappointing that the French government can't see what's best for Alstom and their economy.
  • Alstom has a break-up fee clause, in which Alstom would pay GE 1.5% of the purchase value if it accepted an alternative offer. That's just $255 million.
  • Given GE's $57 billion overseas cash, I don't see a scenario where they will lose out to Siemens.

It seems the "on again/off again" back-and-forth dance between General Electric (NYSE:GE) and the French government has taken another turn. Shares of the industrial conglomerate are trading lower this morning following a report from Bloomberg that German rival Siemens (SI) has had "productive talks" with the French government, in particular, French Industry Minister Arnaud Mantebourg regarding its bid for Alstom's (OTCPK:ALSMY) energy business.

It's been almost two weeks since Alstom's board "accepted" a $17 billion all-cash offer from General Electric. I say "accepted" because ever since that offer, the French government has done nothing but try to pawn Alstom off to the highest bidder. Recall, GE's original bid was for $13.5 billion. The French government, by their delays and maneuvering (I won't say extort), were successful in getting GE to up its bid by an additional $4 billion. But now it's getting out control.

Siemens currently has on the table an offer to acquire Alstom's power businesses in return for its high-speed train and locomotive units. It was this offer that prompted GE to raise its bid price for Alstom by $4 billion. More maneuvering will open up Alstom to possibly more bidders. So I'm not ready to rule out a company like Honeywell (NYSE:HON).

In the meantime, hanging in the balance is Alstom and GE's shareholders, who want nothing more than to get this deal closed so everyone can move on with their lives.

I once took this deal for granted and assumed that GE had the power to close. But at this point I'm not so sure. Don't forget that as much as Alstom wants to get this deal done, they also want as much money for these assets as possible. Alstom has a break-up fee clause, in which Alstom would pay GE 1.5% of the purchase value if it accepted an alternative offer. That's just $255 million.

Siemens, which $17 billion in cash on the balance sheet and another $11 billion in operating cash flow, has enough firepower to come in and sweeten the deal. And the French government, which seems out of alignment, would love nothing more.

I say this because Wednesday morning, Reuters reported that Segolene Royal, the Energy Minister of France, said she saw a GE/Alstom union as a "very good opportunity" for the engineering group. In that same article, after saying that GE has "the best industrial project," she then asked "why do we always try to scare away foreign investment?" Royal's statements were made to weekly magazine Paris Match. Clearly she doesn't share the same views as Mantebourg.

Alstom management, meanwhile, has pled with the French government to get out of the way. Not only was Alstom forced to cancel its dividend, but the company's recent earnings revealed weakening fundamentals. These include declining orders and profits.

It's disappointing that the French government can't see what's best for Alstom and their economy. It remains to be seen if this latest attempt to get GE to pony up more cash will work. GE's CEO Jeff Immelt and GE's board have some very important decisions to make in the coming weeks. But given GE's $57 billion overseas cash, I don't see a scenario where they will lose out to Siemens.

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Source: Siemens Back In Play For Alstom, General Electric Shocked