- Siemens has taken a smart move in bringing in Mitsubishi and potentially other partners.
- Chances of Siemen's offer getting accepted unchanged.
- Whatever the outcome, Siemens will come out stronger.
A strong Japanese connection has come into the bidding war over Alstom (OTCPK:AOMFF), with Mitsubishi (OTC:MIELF) and potentially Hitachi (OTC:HICTF) and Toshiba (OTCPK:TOSBF). A joint Siemens (OTCPK:SIEGY)/Mitsubishi deal alleviates concerns for Siemens investors in terms of management focus and burden of a deal. It would address antitrust issues, too. But it potentially increases French resistance on the back of break-up fears. The government stance seems unchanged at this stage. Whatever the outcome, I see Siemens as a compelling long-term name, and uncertainty may provide opportunities.
Siemens and Mitsubishi will be looking to make a joint offer of Alstom, whereby Mitsubishi would take over the steam turbine and grid businesses. Hitachi has said it is talking with Siemens and Mitsubishi about potentially joining in to the transaction. Toshiba may be interested in businesses that the consortium would not include or decide to sell.
The Japanese press suggests the consortium might offer Eur 7.2bn, which is below GE's offer.
There is compelling business logic in this: Mitsubishi would strengthen its market position in nuclear, and Hitachi would expand its turbine business. Both companies already have a joint venture in the sector. Mitsubishi would also further strengthen its energy presence in Europe after the Vestas offshore wind joint venture.
The grid business component would address antitrust concerns.
Siemens would still reap the great benefit of the gas turbine and other parts of Alstom's business. The very interesting side note is that Siemens implies bullish prospects for gas, last not least from shale gas. It would be willing to enter into a complex transaction for long-term gas power plant demand growth. Outside of Europe, that expectation is, in my view, a base case; and for Europe, a gas plant will also have an important role to play as a balancing plant. Eventually, demand will come back, even if only in the next decade.
As for the chances for such a deal: There will be concerns that it will imply a break-up of Alstom, which will encounter resistance. Alstom management is strongly hitting at that point. Against that weighs the prospect of a European energy and train champion, which also, under this structure, is very much alive.
Mitsubishi has already met with French government officials, GE will have more meetings next week. The French president has said this morning that there is no preference between the Siemens or GE offers, but that they need to be improved. That indicates a largely unchanged stance by the government.
Management focus concerns for Siemens may somewhat be alleviated with a consortium deal. Siemens is my preferred name in all of this, and I see it growing its leadership and pursuing its efficiency drive irrespective of the outcome.
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