) entered the fray for acquiring French industrial giant Alstom,
as the latter stalled the acceptance of
General Electric Company'
) bid till May. Alstom, which operates in the power generation
and transport markets, is a French conglomerate that pioneered
TGV high-speed trains.
GENL ELECTRIC (GE): Free Stock Analysis
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As General Electric proposed a binding $16.9 billion offer to
take over Alstom's Thermal, Power and Grid businesses, Siemens
cropped up as a prospective counter-bidder as it filed a
declaration of interest to Alstom's board.
As a precondition, Siemens has demanded access to Alstom's
financials and the say-so to interview its management over the
next few weeks. After conducting due diligence, Siemens will
decide whether to make a formal competitive offer.
As per media reports, in the tie-up, Siemens's offer would most
likely involve swapping some of its rail assets for the French
conglomerate's energy division, thus creating two "European
champions" in transport and power engineering, as French Industry
Minister Arnaud Montebourg said.
According to some sources, Siemens' interest in Alstom is a
defensive move at its core, triggered by its perception of
General Electric's bid as a competitive threat.
This development came close on the heels of Siemens' agreement to
buy a portion of Rolls-Royce's energy division that makes small
gas turbine generators for the oil and gas industry and small
industrial power plants. The deal, reportedly valued at about £1
billion, is still under negotiation.
General Electric, which has reportedly been in talks to buy
Alstom's power-generation and transmission businesses for several
weeks, finally made a formal offer today. The company's $16.9
billion bid, consisting of $13.5 billion enterprise value and
$3.4 billion of net cash, is being reviewed by a committee of
independent directors. The deal, in tune with General Electric's
corporate strategy to return to its industrial roots, promises
excellent return on capital, supply chain efficiencies and deep
The transaction, if finalized, will be accretive to earnings
immediately, and the company expects to generate over $1.2
billion in annual cost synergies after 5 years. If the deal
materializes in General Electric's favor, it would mark the
biggest acquisition ever for the company and would significantly
enhance its operations in a recovering Europe.
With negotiations underway, General Electric currently seems to
be ahead in the politically charged takeover battle as Alstom's
board reacted positively to the company's formal bid.
Any transaction of this scale is bound to attract intense
regulatory scrutiny, and the French Socialist government has
intervened, proclaiming itself to be an interested party as
state-owned utility EDF and the national railways are key clients
of Alstom. The government is not favoring either bidder, and has
clarified that its priority is ensuring preservation of jobs at
the French firm, and safeguarding the nation's energy
Some analysts believe that a tie-up between Siemens, valued at
$144 billion, and Alstom, with a market capitalization of about
$11.5 billion, could raise antitrust issues.
However, if the deal consummates, Siemens would become one of the
leading global equipment makers for power plants and electric
transmissions. Also, the merged train assets would bring together
Siemens's ICE high-speed trains and Alstom's TGV, creating a
France-based rail leader.
Alstom's independent review committee has assured that it will
weigh the strategic and industrial merits of General Electric's
proposal and Siemens' conditional offer, taking the interests of
all stakeholders into consideration.
Siemens presently sports a Zacks Rank #2 (Buy). Other noteworthy
companies in the sector include
GrafTech International Ltd.
), holding a Zacks Rank #1 (Strong Buy) and
), carrying a Zacks Rank #2.