IT NEVER rains but it pours, at least where Alstom, a French engineering giant with global operations in power generation and transport, is concerned. Last week America’s GE put in a formal bid for Alstom’s energy arm, offering around $10 billion. Then on Saturday night Siemens came up with a proposition of its own: an asset swap. Alstom would cede to Siemens its power-generation activities and in exchange take over Siemens’s German high-speed rail and locomotives (plus an unspecified amount of cash). The idea has some appeal: Alstom virtually fathered high-speed rail, or TGV, in Europe. The idea is to build two European giants, one in transport and the other in energy.
No bid involving a prominent French company would be complete without the country’s economy minister making his view of the matter plain. On Sunday afternoon Arnaud Montebourg said that the government intended to examine both offers carefully with a view to maintaining the country’s industrial fabric, and might even participate financially itself. Jobs, investment, research and decision-making centres must remain in France. The ownership of Alstom’s nuclear-power activities is believed to be a particularly sensitive point.
Siemens has yet to make a firm bid, as it has not had access to Alstom’s books. But the German firm (which, like GE, already operates in France) has reportedly pledged not to fire anyone for three years. It is also said to be willing to spin out the manufacture of nuclear turbines to another French company, probably EDF or Areva. GE’s nuclear partner is Hitachi, a competitor of Areva, the German firm notes.
There is a breathlessness in all this as chief executives leap on planes and doors bang in the president’s office at the Élysée Palace and the economics ministry at Bercy. Earlier this month Mr Montebourg tried and failed to influence a takeover battle for SFR, France’s second-biggest telecoms company. Two weeks ago Lafarge, a big cement firm, agreed to be bought by a Swiss competitor. Now the minister is doing his best to throw sand in the wheels of a GE deal, which less than a day ago looked all but done. “GE and Alstom have their calendar which reflects the needs of their shareholders, but the French government has its own timetable, which is that of economic sovereignty,” he said.
In fact, some such asset-shedding by Alstom has been on the cards for at least half a year. Alstom returned to profit in 2007 from four catastrophic years in the red, but has been struggling to make much money on its €20 billion ($28 billion) annual turnover. Its biggest sector, thermal energy, is also the most profitable (renewables are another story). But the company is very dependent on large orders, and governments, which make most of these, have been deferring big projects. Customers are also more reluctant than before to pay for projects up front and Alstom struggles to get attractive financing.
In November, when the company announced its half-year earnings (its financial year, unusually, runs from April through March), Alstom revealed negative free cashflow of €511m, but stressed its fat order book. Three months later it showed an order book for the first nine months 12% down on the same period a year earlier and predicted that cashflow would remain negative for the year as a whole. A restructuring plan is supposed to lop up to €1.5 billion a year off its costs by April 2016. Alstom said in November that it was planning to dispose of non-strategic assets and would study selling a minority stake in Alstom Transport to an industrial partner or to financial investors, targeting proceeds of €1 billion-2 billion by December 2014.
In the event it is Alstom’s energy arm that seems the more attractive. In February GE suggested buying it but the matter did not prosper. It seems that Siemens also approached Alstom that month, but things went even less swimmingly, in part because the likelihood of staff lay-offs looked greater. But if Alstom sees the chance of strengthening the transport side of its business, not just disposing of the energy side, the forward-looking deal could be more appealing.
There is a a curious footnote to the Alstom deal—which could, but probably won’t, turn out to be as bitterly contested as the fight over SFR. Numericable, a cable group, won that battle, much to Mr Montebourg’s chagrin, and Bouygues, a diversified industrial group, did not. Bouygues is Alstom’s principal shareholder, with just under 30% of the stock. The stake has been doing Bouygues precious little good. Word is that the group is keen to see Alstom remedy matters by unloading some assets quickly.
Update: On Sunday night Alstom said it would make an announcement about the offers on Wednesday April 30th. Trading in its shares is suspended until then.
(Photo credit: AFP
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