The Alstom board of directors has confirmed (Wednesday 30 April) that it has received a binding offer from GE to acquire its Energy activities. The scope of the transaction includes the Thermal Power, Renewable Power and Grid Sectors, as well as corporate and shared services. With 65 000 employees, these businesses registered €14.8 bn sales in fiscal year 2012/13. The proposed price is a fixed price representing an equity value of €12.35 bn ($17.1 bn).

The Alstom board has acknowledged unanimously the merits of the offer and is to set up a committee of independent directors, led by Jean-Martin Folz, to review before the end of May the proposed transaction, taking into consideration all stakeholder interests including the French State and the company’s employees. Alstom CEO Patrick Kron and the committee will also enter talks with the French government ‘to consider its views’. In view of the state’s interest, GE has made certain undertakings, including an offer to headquarter its European power business in France, increase its payroll in the country and increase the number of high-value manufacturing and engineering jobs.

Should the purchase be completed, Alstom would refocus on its Transport activities, using the sale proceeds to strengthen its Transport business and give it the means to carry out an ambitious development. It would also be able to pay down its debt and return cash to its shareholders.

Completion of the transaction would be subject to merger control and other regulatory clearances including shareholder approval. Bouygues, a 29% shareholder, has committed not to sell its shares until this approval and has indicated that it will support the recommendation of the Alstom board.

Siemens offer to be considered

Alstom will also review a bid from Siemens, should it become a binding offer. Siemens’ original proposal was for up to €11 billion ($15.19 billion) in cash, and some of its train operations, for Alstom’s energy division. Siemens has since indicated it would sweeten its proposal by including all of its train operations, and possibility pay a higher cash amount, but is yet to make a formal offer. But if, after having recommended GE’s offer following its review, the board of directors were to support a different transaction, Alstom would owe GE a break-up fee equal to 1.5% of the purchase price.

Complementary energy businesses

Patrick Kron, Chairman and CEO of Alstom, commented: "The combination of the very complementary Energy businesses of Alstom and GE would create a more competitive entity to better service customer needs. Alstom [would be able] to develop its Transport business as a standalone company, with a strong balance sheet to capitalise on opportunities in the dynamic rail transport market".

GE considers that it and Alstom Energy have complementary offerings in power and in grid technology. Their gas and steam turbine ranges complement each other; in wind power, Alstom’s a competitive offering in offshore wind complements GE’s focus on onshore wind; in hydro power, Alstom is a prominent global player while GE is not present.

In a separate development, Rolls-Royce has entered into talks with Siemens over the sale of its power related gas turbine division and its compressor business. The offer is reported to be in the region of £900m.