The companies may announce the deal as early as next week, Bloomberg
cited people with knowledge of the matter as saying late on
If confirmed, a takeover offer from a foreign company would raise
concern among politicians and unions in France, where Alstom employs
around 18,000 people, or 20 percent of its global workforce.
While Alstom is well known for both its transport and power turbine
business, the latter is likely to be of most interest to GE, one
person familiar with the industry said. A report in the French Le
Figaro newspaper also said the power division was GE's main target.
GE has bet heavily on its "power and water" segment, which is one of
the conglomerate's top revenue generators along with jet engines. GE
shares rose 0.2 percent on Thursday.
Such a power-focused deal could leave Alstom's transport business as
a separate publicly listed company in Paris, the person said.
Acquiring Alstom's assets could propel GE toward its goal of
increasing the earnings contribution from its core industrial
manufacturing business to 70 percent from 55 percent last year, as
it reduces its finance exposure.
"Alstom is levered to those themes in which GE believes," Sanford
Bernstein analyst Steve Winoker said in a research note. "GE would
essentially be 'doubling down' on power generation, transmission,
distribution and transportation."
Alstom, which has put its transport division up for sale in an
attempt to fill a hole in its balance sheet, said on Thursday it was
"not informed of any potential public tender offer for the shares of
the company" and promised an update on its options when it releases
annual results on May 7.
A deal for the whole company could hand GE control of Alstom's
high-speed TGV trains and rail-signal technology. GE has the support
of Bouygues <BOUY.PA>, Alstom's biggest shareholder with a 29
percent stake, the Bloomberg report said.
Bouygues would not comment beyond saying that it supported Alstom's
strategy. A GE spokesman declined to comment.
Alstom was bailed out by the French state a decade ago and has
strongly relied on orders from national rail operator SNCF and
utility EDF <EDF.PA>.
Before the takeover bid report, Alstom shares had slumped 20 percent
in the past 12 months on concerns over its cash flow. Those concerns
prompted Bouygues to take a $1.9 billion writedown on its Alstom
stake in February.
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Analysts at Espirito Santo investment bank said that at an
enterprise value to forecast 2015 EBITDA multiple of 9.6 and a
premium of 27 percent to Wednesday's close, the reported price GE
was offering still represented a 14 percent discount to the rest of
the European capital goods sector.
Alstom shares leaped in early trade and closed up 10.9 percent at 27
euros compared with the potential offer price that works out at
around 30.5 euros per share.
Alstom has been hit hard by Europe's economic weakness and a drop in
orders for power equipment from utilities, which in turn are
suffering from low electricity prices. Its train business has held
up better and secured record orders.
The group announced 1,300 job cuts last year and put assets up for
sale to raise cash, including a stake in its transport business,
which makes France's prized high-speed TGV trains. An IPO of the
business is also a possibility.
Analysts see sense in a tie-up. GE has the cash Alstom needs and a
deal could help the U.S. group get infrastructure assets cheaply and
make cost savings in power generation. For instance, GE is looking
to expand in smart grid technology, where Alstom is a strong player.
A deal would also help Alstom strengthen its finances as it faces an
investigation by the U.S. Justice Department for alleged bribery and
could face a heavy fine.
"GE is a big company with big cash flow. Alstom is under greater
pressure than the market appreciates, especially due to the DoJ
investigation," said Nomura analyst Daniel Cunliffe.
French Prime Minister Manuel Valls told reporters the government
would keep a close watch on jobs, technology and decision-making.
His economy minister, Arnaud Montebourg, has a track record of
intervening in big industrial deals.
(Additional reporting by Alexandre Boksenbaum-Granier, Matthieu
Protard and Jean-Baptiste Vey in Paris, Pamela Barbaglia and Anjuli
Davies in London, Lewis Krauskopf in New York, and Aman Shah in
Bangalore; writing by Natalie Huet and Andrew Callus; editing by
Erica Billingham, Elaine Hardcastle and Phil Berlowitz)
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