Deals and IPOs

GE to submit improved Alstom offer Thursday: Sources


General Electric's chief executive will on Thursday unveil to the French government and unions an improved offer for the energy arm of Alstom, a source close to the U.S. conglomerate said of its efforts to fend off a rival proposal.

Alstom's board is due to announce by Monday its choice between GE's 12.4-billion-euro ($16.8 billion) cash offer and a competing proposal by Germany's Siemens and Japan's Mitsubishi Heavy Industries.

An Alstom SA's power plant turbine refurbishment facility in Rugby, U.K.
Chris Ratcliffe | Bloomberg | Getty Images

The fight for the power business of the 86-year-old French company has turned into one of Europe's fiercest industrial tug-of-wars for years, drawing in a French Socialist government which has given itself powers to veto any deal in the name of protecting local jobs and influence over a key sector.

"GE is seeing the government and the Alstom unions tomorrow,'' the source close to GE said on Wednesday. "The offer will, of course, be improved.''

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A separate source close to the matter confirmed the meeting and added that Economy Minister Arnaud Montebourg was set to meet GE management around midday on Thursday, before meeting with Alstom unions in the afternoon.

Almost immediately after Siemens and MHI presented their rival plan on Tuesday, President Francois Hollande's government told both sides to come up with better offers.

Siemens says its proposal with MHI values Alstom's power arm at 14.2 billion euros - nearly two billion euros more than GE's.

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But the two offers are very different in nature. Whereas the former involves Siemens buying just the gas turbines arm of Alstom and MHI taking minority stakes in its other power activities, the GE offer is for all Alstom's energy arm, which includes its thermal power, renewable power and grid businesses and accounts for 70 percent of its revenue.

An ad hoc committee of independent board directors, led by former chairman of PSA Peugeot Citroen Jean-Martin Folz, is due to give a recommendation on the merits of the two proposals to the Alstom board, likely on Friday, according to a source close to Alstom.

Both Alstom bids strong: Pro


Both GE and Siemens-MHI have stressed their commitments to keeping and creating jobs in France to win political favor.

GE has said adeal with Alstom would create 1,000 French jobs within three years but the government is eager for it to formalize the pledge on paper. GE is also expected to address concerns over French access to strategic assets such as power equipment used in nuclear plants, wind and hydro turbines, as well as the fate of Alstom's remaining rail arm.

GE has been discussing those parts of the deal with the government over the past weeks.

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GE's Chief Executive Jeff Immelt told French lawmakers last month his group would set up global headquarters for the grid, hydro, offshore wind and steam turbines businesses in France. Immelt also said GE was considering a tie-up in rail signaling that would give Alstom control of that business.

The Wall Street Journal reported on Tuesday that GE was now considering selling the unit to Alstom.

Montebourg has said he would not let Alstom be "devoured'' and is worried that the group, an innovator and big private employer in the country, would be weakened if reduced to its rail arm, which accounts for a quarter of group revenue.

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A source familiar with the matter said the government was looking for GE to offer more balanced "alliances''.

"Alliances can take various forms... It can be capital alliances, industrial tie-ups, it can be joint-ventures, shareholdings,'' the source said.

The same source said the government would make its view known at least to Alstom before its decisive board meeting.

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Bouygues question mark

After a meeting with Montebourg on Tuesday, some Alstom unions welcomed the Siemens-MHI plan, saying that it would better preserve Alstom.

But several sources close to Alstom told Reuters they were concerned about the relative complexity of the Siemens-MHI plan and that, unlike the GE offer, they did not consider it as having binding status.

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Those sources familiar with Alstom's thinking are skeptical that the Siemens-MHI plan can address Alstom's core problems: its lack of critical mass in a tough power market and the need to inject cash into its more promising transport arm.

An all-cash purchase by GE of the power arm could return an exceptional dividend to Alstom shareholders and allow the company to refocus on its transport arm known for making France's iconic TGV bullet trains.

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Ratings agency Moody's said in a note that the Siemens/MHI offer had the potential to strengthen Alstom financially and bring its debt down.

"It would however also leave Alstom in control of structurally declining (coal power generation) or competitive and oversupplied (power grid) businesses, whose further development could prove challenging,'' Moody's said.

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Further question marks remain over the intentions of 29-percent shareholder Bouygues.The group has publicly stated it would support any decision made by Alstom's board and wanted to keep its shareholding at 29 percent in the long term.

However one source familiar with the conglomerate's thinking said it wanted a significant stake in a group which it believes has a future - with a stake of over 20 percent that enables it to consolidate related earnings -but would not want a diluted stake in a business it sees as wobbly.

A spokesman for Bouygues said on Wednesday morning that MHI had offered to take a stake of up to 10 percent in Alstom by buying up some of its stake along with French public investment bank BPI. However he said Bouygues had not been approached by the state or BPI at this stage.

--By Reuters