Posts Tagged ‘Bouygues’

Bouygues’ need for cash will make or break GE’s bid for Alstom assets

June 21, 2014

As I suspected it seems to be the share price at which Bouygues are prepared to divest their shareholding in Alstom which will determine whether GE will acquire Alstom’s energy assets or whether the rival bid from Siemens/MHI will succeed. It seems that if a share price of less than €30 per Alstom share is accepted by Bouygues then GE may win the deal with the governments backing. IF they hold out for €32 or more then it may be Siemens/MHI who get the nod.

It is a hectic weekend for Alstom, the French government and Bouygues. The French government’s acquisition of 20% of Alstom’s shares is integral to their backing of GE’s bid over the rival bid from Siemens/MHI.

It is Bouygues need to exit from their 29% shareholding in Alstom and their need for cash which is probably the main driver for Alstom’s divestment. For Bouygues the book value of their holding of some 89 million shares is at about a value of  €33 per share whereas the market price is currently only around €28-29. Clearly the French government would prefer to just pay market price but Bouygues could well argue that their shareholding was acquired at the behest of the French government in the first place. Without their “white knight” intervention Alstom would have gone to the wall.

If Bouygues holds out for close to book value and the French government balks at the price then the Siemens /MHI offer may gain traction – especially if it offers Bouygues not only a higher price but also a clean exit from their entire shareholding.

Reuters: Talks on an industrial tie-up between Alstom and General Electric entered a critical phase on Saturday, as the French government wrangled with Alstom shareholder Bouygues over a key plank of the transaction. Sources close to the negotiations said talks were continuing over the price at which the French state would acquire 20 percent of Alstom from Bouygues – a condition for government approval of Alstom’s alliance with GE in preference to a rival Siemens-Mitsubishi offer. ……

French President Francois Hollande applied more pressure to Bouygues, telling reporters in Paris he expected rapid progress in the stake purchase talks. “This is a major condition for the government’s acceptance of the alliance,” Hollande told reporters in Paris. “That’s why I believe we will make progress by the end of the day.” Without an acceptable deal on the Bouygues stake, he added, “it would be necessary to reconsider the alliance as it has just been announced”. …….

……  Economy Minister Arnaud Montebourg finally announced state backing on Friday for a GE-Alstom deal valuing Alstom’s energy business at 12.35 billion euros ($16.77 billion). But the official green light remains subject to strict conditions agreed with GE as well as the government’s successful purchase of a 20 percent stake from Paris-based Bouyues.

Montebourg said the French state was prepared to pay only market price for the Alstom shares, which closed at 28 euros on Friday – about 20 percent short of their accounting value to Bouygues.

My guess is that if Bouygues needs around €2.8 billion and if they hold out for more than €32 per share the GE deal may fail and the scales may tip in favour of the Siemens/MHI bid.

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Auction for Alstom develops as GE and Siemens/MHI up their bids

June 20, 2014

UPDATE!

The auction could be over. It looks like the French government is backing GE’s offer and will itself take a 20% stake in Alstom.

France to Back G.E.’s Bid for Alstom Assets

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Once upon a time I was recruited by ASEA in Sweden. Then ASEA merged with BBC and through no action on my part I became an employee of ABB. Some years later ABB sold all its Power Generation business to Alstom (along with me) and – once again without any action on my part – I became an employee of Alstom. In due course I retired but one of my last actions was to sell off part of Alstom’s industrial power generation business to Siemens as part of a global divestment. Whereupon I was recruited by Siemens in Germany to help with growing the business just acquired from Alstom. And then I finally did “retire” – insofar as “retirement” means that I can now reject engagements which do not interest me.

So the current battle going on between GE on the one hand and Siemens/MHI on the other to acquire all of Alstom’s power generation business is of particular interest. The Alstom Board which had -in principle – accepted GE’s offer, is now faced with evaluating two rival bids. During this week both have improved their bids.

Alstom’s Board will convene no later than June 23 to review the bids.

My personal view is that that the Alstom need for divestment is driven not only by their debt but – perhaps more importantly – by the desire of their largest shareholder to exit. Bouygues owns 29% of Alstom and came in – at the behest of the French Government – when Alstom were in dire straits. But now Boygues themselves are in some trouble and need to exit and they need to convert their 29% to as much cash as possible. With Alstom paying no dividend, Bouygues’ 29% holding represents about €2.5 billion locked up as a non performing asset. So in my view the critical points for Alstom in selecting a buyer will be

  1. ensuring that whatever is left of Alstom after the divestment is more than merely viable, and
  2. that Bouygues gets the maximum cash return for its 29% in a “clean” and lucrative exit.

In any event a good, old fashioned, “bidding war” between GE and Siemens/MHI is probably a good thing for all Alstom shareholders – including Bouygues. I recall – during my time with Alstom – when Alstom was forced to sell its profitable industrial power generation business. The final sale price ended up about 48% higher than Alstom’s internally evaluated value – just because an auction did develop between Siemens and Hitachi. And the auction did not just happen – it took much time and effort to promote.

Whether the Alstom Board can engineer a “good” auction to the benefit of the remaining Alstom train business and their shareholders remains to be seen.

Bloomberg: 

Immelt is in Paris to present new details of GE’s $17 billion plan to officials including Economy Minister Arnaud Montebourg, according to GE. Negotiators for the U.S. manufacturer continue to refine specifics ahead of a June 23 deadline, including the structure of Alstom’s renewable energy, grid and transport businesses, the company said.

Seven weeks after unveiling its proposal for Alstom’s energy operations, GE confronts a counterbid by Siemens that seeks to carve up Alstom together with Japan’s Mitsubishi Heavy Industries Ltd. (7011) and Hitachi Ltd. (6501) The Siemens proposal values the energy assets at 14.2 billion euros ($19.3 billion).

Immelt’s return to Paris underscores the stakes in a deal that would give Fairfield, Connecticut-based GE control of Alstom’s technology for electricity transmission and power-plant maintenance as Europe’s economy starts to recover. The acquisition would be GE’s biggest ever and bolster Immelt’s push to return the company to its industrial roots.

Reuters:

Siemens and Mitsubishi Heavy Industries (MHI) raised their offer for Alstom’s energy businesses to compete with a revised bid by U.S. rival General Electric.

Siemens-MHI and GE have been facing off in a battle for control of Alstom’s power businesses that has seen the Socialist government give itself powers to block any deal in the name of protecting local jobs and influence over a strategic sector. 

Under their amended offer, Siemens-MHI would pay 8.2 billion euros ($11.2 billion) in cash rather than 7 billion and value Alstom’s power businesses at 14.6 billion euros, 400 million more than previously and still well above GE’s 12.4 billion.

……. The improved Siemens-MHI proposal still foresees Siemens buying Alstom’s gas turbine business. But MHI is now offering to buy a 40 percent stake in the combined steam, grid and hydro business of Alstom and bundle them in a holding company. It previously planned to create three joint ventures by acquiring 40 percent of the steam business, 20 percent of grid and 20 percent of hydro. The change will increase MHI’s share of the cash payment to 3.9 billion euros from 3.1 billion. Siemens’s contribution rises to 4.3 billion euros from 3.9 billion, with the company saying the increase was based on “a subsequent, more advanced opportunity/risk analyses”.

In addition, Siemens is offering to immediately enter into a joint venture for mobility management, including signalling, with Alstom.

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