Clash of the titans as power companies pursue dominance in energy sector: Alstom, GE, Siemens, ABB…

May 2nd, 2014, Published in Articles: EE Publishers, Articles: Energize

 

Alstom, the French power and transport company involved in two large South African projects, is the subject of rival take over bids by industrial giants Siemens and GE, both of which have made massive offers for the firm’s power business. ABB is said to be watching developments closely.

alstom-ge-acqisition

Alstom’s power division is heavily involved with the steam turbines, generators and control and instrumentation contracts for Eskom’s new Medupi and Kusile power stations, and its transport business is contracted to supply new commuter trains for Metrorail in South Africa for ten years starting in 2015.

EE Publishers reported late last year that Siemens would take over Alstom’s problematic boiler protection software contract at Medupi power station. One wonders what the effect would be if GE, rather than Siemens, were to purchase Alstom’s power business, and how a change of ownership of Alstom’s power business may affect the completion of Medupi and Kusile.

Bloomberg reports that GE has offered US$17-billion for Alstom’s energy business to get official negotiations going and to prevent Siemens from making a counterbid. This, according to The Telegraph, after Siemens threatened to upset GE’s initial offer of $13-billion by working with Alstom to set up two European titans, one in transport and another in power. The newspaper reports that Siemens has offered $14-billion in cash plus its transport business, which makes high-speed trains, for Alstom’s power business. This appears, on the surface, to be a win-win arrangement, but one wonders how the EU competition authorities would view such a concept.

Apparently Siemens is not quite ready to make a new bid at this time as it is busy with a due diligence process, although it has been reported that the company is also in discussion with Rolls Royce over a possible purchase of the latter’s gas turbine and compressor business worth about $1,5-billion. The Telegraph reports that the head of Rolls Royce, John Rishton, is said to be optimistic of the successful conclusion of that deal. The paper also reports that the French government has intervened in the discussions as it is concerned that the American company might win the deal before Siemens has time to bid again.

The Guardian reports that it seemed certain that Alstom would fall into GE’s hands until Arnaud Montebourg, France’s economy minister, intervened. The minister said that he was actively seeking “other solutions” to the American offer, telling reporters that his government “is expressing its patriotic concern and vigilance”. Montebourg says that other offers should be improved to prevent French companies from becoming the “prey” of multinationals seeking to acquire European companies. Montebourg has apparently called on Alstom to take a month to evaluate the bids and has refused to rule out the nationalisation of the company’s nuclear power business, which is considered a strategic asset to the country. It was reported that Montebourg told the French parliament of Siemens’ offer even before the company could issue a press release, which forced the company to issue a hurried statement to its shareholders.

Although initially outspoken against the GE offer, Montebourg has since taken a more reconciliatory tone towards the American company, when he told a parliamentary committee that France and GE enjoy a good relationship. The American company already employs about 11 000 workers in France where it builds aircraft engines in a joint venture with French company Safran. Montebourg apparently said that a fifty-fifty arrangement with Alstom, similar to what it has with Safran would be preferred.

Alstom is reported to have set up an independent committee to discuss GE’s offer, and is willing to enter into exclusive talks in June if the American company’s offer is accepted. Bouygues, which holds 29% of Alstom’s stock, has said that it will support Alstom board’s recommendations. Alstom has reserved the right to consider unsolicited offers which could result in the company being offered a better deal. If that were to happen, after Alstom’s board accepts GE’s bid, the company would have to pay GE a penalty, known as a “break fee”, of 1,5% of the purchase price.

Send your comments to: energize@ee.co.za

 

 

 

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