GE and Siemens brace for battle over Alstom
General Electric seeks to make its largest-ever acquisition while rival wins government backing
Jeffrey Immelt is trying to defend General Electric's largest-ever acquisition, after French officials imperiled the attempt by urging Alstom to consider a rival offer from Germany's Siemens.
The chief executive of GE was scheduled to meet President Francois Hollande yesterday after he was rebuffed by Industry Minister Arnaud Montebourg at the weekend.
Montebourg, an outspoken critic of big business, said a deal with Siemens, which would entail swapping some of its rail assets for Alstom's energy division, would create two "European champions".
Both firms have taken steps to appease policymakers in Paris.
GE argued that its plan, to acquire the energy business while Alstom's transport unit is separated, would result in fewer job losses, thanks to smaller overlaps of operations, sources said.
Siemens was willing to make guarantees about jobs and executive positions, a source said.
"None of these big players buying Alstom is going to be a smooth ride," said Simon Toennessen, an analyst at Credit Suisse. "Siemens is seeing the competitive threat from GE as big enough to consider this step."
Alstom has a market value of €8.3 billion (HK$89 billion).
Alstom's board met to examine the two approaches, and so far preferred GE's, the sources said. However, it was also considering Siemens' offer out of deference to the government's wishes.
GE had conducted due diligence and received approval to proceed with the deal from its own board, they said.
For its part, Siemens was making the case that an asset swap would create an undisputed European leader in rail rooted in France, bringing together its ICE high-speed trains with Alstom's iconic TGV, they said.
Siemens would become one of the world's largest manufacturers of equipment for power plants and electric transmission.
Siemens was willing to match or exceed the financial terms of GE's offer, the sources said.
The offer from GE valued the whole of Alstom at about US$13 billion excluding debt.
"Given all these new factors, is there ever going to be a transaction? That's the new 'if' here," said Nicholas Heymann, an analyst at William Blair in New York. "Siemens has basically inserted itself into the process. It officially makes the process slow down."
In making a play for Alstom's power assets, which could be worth as much as US$14.5 billion, Immelt is looking to build on a plan to reorient GE towards manufacturing. GE Capital imperiled the company during the global financial crisis, and since then Immelt has sought to build up divisions that make capital goods such as jet engines, locomotives and power equipment.