Alstom Has Options After Siemens and MHI Offer

Siemens AG and Mitsubishi Heavy Industries Ltd. (MHI) announced on June 16 that they have submitted a proposal to Alstom, the French multinational conglomerate.

The offer comes less than a week after the companies confirmed that they were considering a joint proposal and less than 2 months after General Electric (GE) made an offer to acquire Alstom. Shortly after GE’s bid, the French government revised a 2005 law, which now gives it the authority to block foreign acquisitions in the energy sector, if not deemed to be in the country’s best interest. To date, leaders have indicated that the GE deal would not be approved in its originally submitted form.

The Siemens and MHI bid includes several transactions designed to preserve Alstom’s business while strengthening its finances. As part of the proposal, MHI would form an alliance with Alstom and create three joint ventures. MHI would acquire 40% of Alstom’s steam and nuclear business, 20% of its grid business, and 20% of its hydro business, in exchange for €3.1 billion ($4.2 billion) in cash. MHI also proposed becoming a long-term shareholder of Alstom by acquiring up to 10% of the company from Bouygues SA, one of the company’s major shareholders and a key architect of the GE deal.

For its part, Siemens offered to acquire Alstom’s gas business, including related service contracts, for €3.9 billion ($5.28 billion) in cash. Siemens also offered a job guarantee for transferred gas business employees in France and Germany for three years after the closing of the transaction. To sweeten the offer in the French government’s eyes, Siemens also announced that it would provide training for 1,000 French young people in both technical and administrative professions. Siemens President and CEO Joe Kaeser made that commitment while meeting with French President François Hollande on June 17.

“Siemens’ training programs are highly respected worldwide and open up great opportunities for a successful career. We want to send a signal and offer good training positions to many young men and women in France,” said Kaeser. The company estimated that the training would cost about €32,000 ($43,338) annually per trainee.

Two other aspects of the proposal that the French government would likely view favorably are that Alstom would remain listed in France and Siemens’ intention to establish its European headquarters for the combined gas service business in France. GE’s offer for Alstom included centering its European power business headquarters in France, along with centers of excellence for its steam turbine, hydro, offshore wind, and grid businesses. GE also anticipated net growth in jobs in acquired businesses in France, but the French government remained critical of that deal anyway.

“This move would be a win-win solution for all related parties. Alstom would remain an independent energy and transport player with a strong brand. Its energy business would be strengthened through the partner MHI and we intend to explore opportunities with Alstom to create a European rail champion for the world market,” said Kaeser.

The proposal will be reviewed by an ad hoc committee of independent directors of Alstom, chaired by Jean-Martin Folz, and is expected to be submitted to the Board of Directors of Alstom in the coming days.

Aaron Larson, associate editor (@AaronL_Power, @POWERmagazine)