The French government raised the stakes in the battle for engineering group Alstom on Tuesday, telling rival suitors General Electric (GE) and Siemens to come up with better offers.
President Francois Hollande’s government has given itself the power to veto a deal on the grounds it does not want Alstom (ALSO.PA), an innovator and big employer, to sell the bulk of its business to a foreign firm without the state having a say.
In a crunch week for Alstom as the deadline for GE’s bid approaches on June 23, Germany’s Siemens SIEG.DE presented a joint proposal with Japan’s Mitsubishi Heavy Industries (MHI) (7011.T) to Hollande earlier on Tuesday that it said valued Alstom’s power arm at 14.2 billion euros ($19.3 billion) – above GE’s existing 12.4 billion offer.
But Hollande’s government responded by saying it expected better offers from both companies.
“The talks between the state and the different companies are going to continue this week,” a source in Hollande’s office said after the meeting with Siemens Chief Executive Joe Kaeser and Mitsubishi Heavy Industries CEO Shunichi Miyanaga.
“The offers must be improved,” the source said.
Kaeser, outlining the Siemens-MHI offer to reporters across town in Paris, said he saw no reason to discuss improving a proposal which was already the better one on the table.
“Why would a superior offer be improved if it is superior already? There is no reason for us to discuss that question at this time,” he told a joint news conference with MHI’s Miyanaga.
A source close to GE said the group was still discussing parts of the deal with the French state – notably on Alstom’s rail, nuclear and renewable energy assets – but said it too would not increase the cash component.
“GE will not enter a cash bidding war and will not change the June 23 cut-off date,” said the source.
Under the Siemens-MHI offer, Siemens would buy Alstom’s gas turbines business for 3.9 billion euros in cash while MHI would buy minority stakes in various Alstom power activities, to be held in three separate joint ventures, for 3.1 billion euros in cash. MHI would also offer to take a stake of up to 10 percent in the French firm from 29 percent shareholder Bouygues (BOUY.PA).
GE – which is ramping up its charm offensive in the French press with ads saying an “alliance” with Alstom would create a global energy leader – has made an offer for all of Alstom’s energy arm, which includes its thermal power, renewable power and grid businesses.
For its part, Alstom has said only that it would examine the Siemens-MHI proposal in the coming days. A source close to the company said the Alstom board would take a decision by June 23 at the latest. The source further noted the GE proposal had the status of a binding offer, unlike the Siemens-MHI plan.
FRENCH ICON
Hollande’s Socialist government has tried to negotiate better offers to preserve Alstom as a player in transport and energy, seeing both as vital national industries when unemployment is stuck above 10 percent and voters are increasingly turning towards the far-right.
It passed a decree last month giving itself new powers to block foreign takeovers in sectors deemed “strategic.”
Kaeser said the aim of the Siemens offer was to make a “proud French icon” even stronger. Alstom makes TGV high-speed trains and supplies power equipment used in around 40 percent of nuclear plants worldwide.
Economy Minister Arnaud Montebourg was due to meet with Alstom union representatives at 1430 GMT to discuss the proposals. Siemens and MHI had met with unions earlier in the day in an effort to ease concerns about the future of the group.
“We were pleasantly surprised. The MHI-Siemens offer is appealing” as it leaves Alstom roughly intact, CFE-CGC union representative Didier Lesou said.
The French government’s call for better offers comes as it battles with U.S. authorities to reduce penalties on France’s biggest lender BNP Paribas (BNPP.PA) for breaching U.S. sanctions against Iran and other countries between 2002 and 2009. However, French officials have not drawn a link between the two issues, in public at least.
Alstom shares were down 1.24 percent at 1517 GMT (11.17 a.m. ET), weighed down by the government’s intervention and uncertainty over a deal. Investors had initially welcomed GE’s offer as a quick fix for Alstom’s lack of critical mass in a tough power market.
On Tuesday, some analysts said the Siemens-MHI offer could be more attractive for Alstom in valuation terms and noted it would leave the company controlling most of its existing power arm. Yet others argued the offer would result in a more complex outcome that made a priority of political concerns.
“GE’s offer has the merit of being clear and coherent, something the Alstom board should appreciate,” Aurel BGC strategist Tangi Le Liboux wrote in a note to clients.
“But the MHI-Siemens offer is designed to win over the government,” he added.
Union Investment fund manager Christoph Niesel said the current state of play was a “win-win situation” for Siemens.
“Either it gets the gem of the portfolio at an acceptable price or it has an elegant exit strategy,” it said of the offer for Alstom’s gas turbines arm.
Mitsubishi’s Miyanaga told the joint news briefing with Kaeser that it would create around 1,000 new jobs in France with joint research and development, marketing and manufacturing cooperation, and efforts to boost local vocational skills.
Kaeser said he had committed during the morning’s meeting with French officials to create 1,000 apprentice training jobs in France and guaranteed that existing Alstom worker benefits would not be damaged by the tie-up.
REUTERS
