Friday 2nd May 2014


May 2, 2014

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Wind Watch

For senior management at Alstom, General Electric and Siemens, it’s been quite a week.

Bloomberg revealed last Thursday that US giant GE was on the cusp of a takeover bid for French firm Alstom’s energy assets. This bid materialised on Wednesday. The French company has said it would make a decision on the GE bid by the end of May.

That makes it sound like the process has been straightforward. In reality, the GE takeover bid has provoked the ire of the French government, which doesn’t want one of its business jewels falling into US hands – or the secret talks that have surrounded the deal.

This anti-American rhetoric has now softened.

Meanwhile, GE’s German rival Siemens has complicated what looked to be a done deal by saying it would make a counter-offer. It now has four weeks to decide if it is going to do so after poring over Alstom’s finances and interviewing its senior management.

The French government – which is not a shareholder in Alstom – has been more receptive to the idea of a Siemens takeover, and this could make it difficult for GE to finalise a deal.

All of this makes it look like Siemens is a shoo-in for a takeover, but that just isn’t so. Our money’s still on GE.

This month-long delay gives the government time to reflect on the absurd idea that an American firm is more likely to cut jobs than a German firm would. GE wants to grow in Europe and compete with Siemens, so it would make little sense for it to make major cuts even if Alstom’s structure changes.

By contrast, Siemens is dominant in Europe and this gives it a far greater capacity to absorb Alstom into its existing operations.

The French government should also reflect on the negative message that scuppering the GE deal sends to international corporate cash. If the government is keen to attract renewable energy investors and create jobs, as environment and energy minister Segolene Royal said, it cannot be an obstacle.

We also see little evidence that a Siemens bid makes more sense. Siemens and Alstom have competed hard for decades, whereas GE and Alstom go back as far as 1928 with a shared founding company — as GE has already made clear.

Sure, for Siemens it would enable it to swap some troublesome transport assets, prevent GE gaining a major European foothold and eliminate one of its fiercest competitors.

But there are also reasons why doing no deal makes more sense for Siemens.

Talk of this bid may be a diversion that gives the company an opportunity to review Alstom’s finances in detail over the next month, as well as talking directly to its management.

And remember, Siemens hasn’t yet committed to bidding.

GE remains the favourite. Talks have been underway for months and for now, frankly, it’s the only real deal on the table.

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