Siemens Lifts Alstom Energy Bid to $19.9 Billion, Defying GE

Jun 20, 2014 5:11 am ET

(Updates with GE comment in second paragraph.)

June 20 (Bloomberg) -- Siemens AG and its partners improved their offer for Alstom SA, valuing the French company’s energy assets at 14.6 billion euros ($19.9 billion) and raising the stakes in the takeover battle with General Electric Co.

Siemens and Mitsubishi Heavy Industries Ltd. lifted the cash component by 1.2 billion euros to 8.2 billion euros, they said in a statement today. While Siemens is offering 4.3 billion euros for gas turbines, Mitsubishi Heavy would pay 3.9 billion euros for stakes in steam-turbine, power-grid and hydro units. GE’s cash component is still higher, the U.S. company said in a separate statement, without giving a precise figure.

The revised German-Japanese offer, aimed to take complexity out of the bid, comes hours before GE Chief Executive Officer Jeffrey Immelt meets French President Francois Hollande in an attempt to clinch a deal. GE improved its own proposal for Alstom, as the U.S. conglomerate seeks to close what would be its biggest purchase yet, while Siemens is trying to avoid its main competitor bulking up in its own backyard. Siemens CEO Joe Kaeser is also scheduled to meet Hollande today.

“From an Alstom shareholder’s perspective, the GE proposal appears marginally more attractive,” said Andrew Carter, an analyst at RBC Capital Markets. GE is offering more cash and the U.S. bid would also reduce Alstom’s exposure to troubled steam and nuclear businesses more than under the Siemens proposal, he said.

Higher Valuation

As part of the new proposal, Siemens increased the valuation of Alstom’s energy assets by 400 million euros to 14.6 billion euros.

GE yesterday refined its bid for Alstom SA’s energy assets by adding alliances in nuclear technology and rail. The cash element of its original offer, that values Alstom’s energy assets at 12.35 billion euros, will be pared, Immelt said yesterday in Paris, without giving a figure.

“The cash we will provide to Alstom is higher than the competitive bid even with the increase they announced this morning,” GE said today. “In addition, the competitive bid is not binding and is unrealistic because it splits Alstom’s gas and steam businesses.”

Three-Way Approach

The U.S. company said it would sell its rail-signaling operations to Alstom, which in turn will keep a stake in joint ventures being formed in power grids, steam turbines and renewables. GE and France’s Alstom also will create a nuclear- energy partnership to appease French concerns about the the sovereignty of the country’s nuclear power industry.

Siemens shares dropped 0.1 percent to 99.82 euros as of 11:09 a.m. in Frankfurt, while Alstom gained 1 percent to 27.98 euros in Paris.

After weeks of behind-the-scenes negotiations, the competition for Alstom has gained pace as a deadline for final on June 23 approaches. Kaeser was in Paris this week to lay out his revised proposal, followed by the trip to the French capital by Immelt.

Kaeser enlisted the support of Mitsubishi Heavy and Hitachi, betting the three-way approach will help each side pry away the most attractive pieces of Alstom. That plan has made his bid look more complicated than GE’s overture, and prompted Kaeser to revisit his concept within days. Alstom and its stakeholders had indicated in discussions they wanted a less complex offer with a higher cash element, Kaeser told journalists today.

‘Bidding War’

“This seems to be turning into a bidding war,” said Yukihiro Kumagai, an analyst in Tokyo at Jefferies. “Given Mitsubishi Heavy’s ambitions to expand their share in the market, they need this kind of deal. If GE wins, then they will be heads above the rest.”

The revised plans by Siemens and GE seek to appease French politicians demanding job guarantees and concessions on energy independence.

GE’s offer is “a significant improvement,” French Finance Minister Michel Sapin told reporters in Luxembourg yesterday. “This shows the government was right to intervene. Happily, we acted.”

GE and Alstom signed a memorandum of understanding to create a global alliance in transportation that would let the French company expand in North America and add freight clients. The deal includes the sale of GE’s rail-signaling business to Alstom and agreements in services, technology, supply chain, manufacturing and commercial support. Alstom’s business making TGV high-speed trains isn’t part of GE’s planned acquisition.

Rail Merger

In a letter submitted to Alstom today specifying the proposed transaction, the Siemens-led group reiterated that it plans to keep Alstom largely intact and help create jobs, as it seeks to woo the French government, which is involved in the bidding process.

Siemens’s plan had also envisioned merging the train operations of Siemens and Alstom and the Germany company said today it’s now also offering an immediate rail-signaling joint venture with the French rival. Siemens would have a bigger stake in the joint venture because it has greater market share, Kaeser said today.

Offers of alliances and the opportunity for Alstom to become a railway-equipment leader are at the center of the battle to win over both the government and the company. Both proposals highlight strengthening Alstom to soften the blow of taking out a company that’s deemed strategically important and has benefited from state support in the past.

Under the new proposal, Mitsubishi would offer to buy 40 percent of Alstom’s grid and hydro units instead of 20 percent, using one single holding company rather than the three joint venture structure originally proposed. It still proposes to buy 40 percent of Alstom’s steam business.