General Electric <GE.N> 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 by Monday to announce its choice between GE’s 12.4-billion-euro (9.93 nillion pounds) cash offer and a competing proposal by Germany’s Siemens <SIEGn.DE> and Japan’s Mitsubishi Heavy Industries (MHI) <7011.T>.
The fight for the power business of the 86-year-old iconic 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.”
A separate source close to the matter confirmed that timing and said France’s government would make its view known at least to Alstom <ALSO.PA> before its decisive board meeting.
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 – nearly two billion euros more than GE’s.
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 per cent of its revenue.
An ad hoc committee of independent board directors, led by former chairman of PSA Peugeot Citroen <PEUP.PA> Jean-Martin Folz, is due to give a recommendation on the merits of the two proposals to the Alstom board before it meets.
BOUYGUES QUESTION MARK
A source close to GE said it was still discussing parts of the deal with the French state – notably on Alstom’s rail, nuclear and renewable energy assets.
Both GE and Siemens-MHI on Tuesday had in public ruled out entering a bidding war for the Alstom assets.
Both have stressed their commitments to keeping jobs in France and creating new posts because the winner will have to win political favour as well as the backing of the Alstom board.
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.
Those sources familiar with Alstom’s thinking are sceptical 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.
By contrast, 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.
Ratings agency Moody’s said in a note that the Siemens/MHI offer has 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.
Further question marks remain over the intentions of 29-per cent 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 per cent 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 per cent 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 per cent in Alstom by buying up some of its stake along with French public investment bank BPI. However Bouygues said it had not been approached by the state or BPI at this stage.
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