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Summary

  • Adding Alstom’s power business would have added a significant boost to General Electric’s strategy to return to its industrial roots.
  • Although losing Alstom won't materially prevent this from happening, it would nonetheless be a shot in the gut and in GE's ego.
  • The French government is doing all it can to make sure that happens.

It would be a gross understatement to say that General Electric's (NYSE:GE) $17 billion bid for the power division of struggling French company Alstom (OTCPK:ALSMY) has been difficult to reel in. We've been following the developments closely over the past couple of weeks. And it appears the only predictable part of this entire negotiation process that there will always be something to impede the progress.

We already knew that the French governments wasn't happy about the deal, which was originally for $13.5 billion. We thought money was the object. But even after General Electric raised its bid by an additional $4 billion, it still wasn't enough. This is even though Alstom's board formally accepted the offer.

German rival Siemens (SIE) 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. Next the French government raised concerns about the possible loss of French jobs.

But Jeff Immelt, GE's CEO, 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.

Last week, the French government insisted that GE should revise its bid. 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. Alstom, which was not in the best of health to begin with, understands that GE won't budge.

This latest maneuvering prompted Alstom management plea for closure. Due to weakening fundamentals, such as a decline in orders and profits, Alstom says it can't operate without this deal being completed.

Last week, 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.

The French government hasn't budged. They just passed a law that gives the government (themselves) the power to block foreign acquisitions of businesses that it deems to be in a strategic sector. In this case, its Alstom's power business, which, as noted, generates roughly 70% of Alstom's revenue.

There is now a report that Siemens could make a another bid for Alstom sometime this week. Siemens current offer is for $14.5 billion, or $3 billion less than GE's bid. But Siemens plans to exchange its rail business and cash for Alstom's power assets.

The reports now suggest that Siemens is considering handing over all its rail business to Alstom. The French government, which has less than a 1% stake in Alston, is said might raise its stake to 10%.

Adding Alstom's power business would have added a significant boost to General Electric's strategy to return to its industrial roots. Although losing Alstom won't materially prevent this from happening, it would nonetheless be a shot in the gut and in GE's ego. Is the company prepared to lose out to its German rival? The French government is doing all it can to make sure that happens.

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Source: General Electric Must Prepare To Lose Alstom To Siemens