- Siemens/Mitsubishi have made an offer that stands a good chance, as it responds to the French government's desire to keep Alstom from being broken up.
- Siemens gets the strategically important gas turbine business, and mitigates risk with a smaller share rather than a big transaction.
- Siemens' share price should re-rate as market concerns recede.
The Siemens (OTCPK:SIEGY)/Mitsubishi (OTC:MIELF) offer for Alstom (OTCPK:ALSMY) may be the win-win solution, and in my view, stands very good chances. Siemens's share price should react positively as market concerns over management focus, cost and impact on the reshaping should recede. If successful, Siemens would get the business of most interest for its strategy, at minimum cost.
Siemens may have pulled out a winning hand in the battle for Alstom. The company has offered Eur 3.9bn for the gas turbine business only, while Mitsubishi will take over the grid and transmission business in a JV, inject Eur 3bn of cash and take over 10% of the Bouygues stake.
The financial consideration is now above GE's offer. GE has stepped up its PR effort, and has run a very strong press and even radio campaign in France, in which it presents itself as long-connected to and a part of the French economy. That, in itself, merits applause. And, it may likely have has a positive impact on perception for GE.
Siemens has taken a very different approach to communication. It has waited for governments to welcome, if not call on it, and insisted it will carefully decide on any potential offer. That was, to an important extent, a message directed to Siemens stakeholders worried about loss of management focus, financial burden, dilution and overpayment risk. But it has also sent a strong signal to the target, its shareholders and the government, about negotiating strength.
The Siemens/Mitsubishi offer has the great advantage of giving the French government a structure that corresponds to its desire: Keeping Alstom intact as a company, and securing it a strong position in energy. With the joint venture structures, there won't be any break-up and Alstom will remain a publicly quoted entity. It will have a strengthened base of stable shareholders. One must expect the French government to be very appreciative of that element. That may weigh stronger than the lack of a train offer. And, not only will it address the issues of national energy interest and security, but it gives potential partners that may support nuclear export growth, about which France is very keen.
Siemens would be a big winner. It would get the gas turbine business it is looking for, and at minimum cost.
This structure should reassure Siemens' investors, and confirms my thesis that the company is on a consistent path. The share price should pick up to reflect that.
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