In the battle over the coveted French industrial outfit Alstom, Siemens was not about to let archrival General Electric (GE 8.28%) win without a fight. So, just as the cards seemed stacked against the German conglomerate, Siemens decided to recruit the help of the Japanese through an alliance with Mitsubishi Heavy Industries (MHI). The alliance will undoubtedly put Siemens in a better position to clear regulatory hurdles, but can it leapfrog GE's $17 billion bid? Lets look at the ins and outs of a potential deal ahead of Monday's looming deadline.
Source: Flickr/Jeffrey Turner, Wikipedia.
By June 16, Siemens and MHI plan to submit a proposal to Alstom's board of directors, so right now, investors can only speculate as to what the specifics might look like. Ahead of the proposal, however, here's what the two companies had to say about a three-way deal: "[W]e firmly believe that we can substantially contribute to a partnership solution for Alstom which will create value for all parties involved, including the country of France." With that in mind, let's add a fourth party to the mix based on that last clause: French government officials.
Ironically, Siemens and MHI's Franco-friendly angle might be the only mechanism they can employ to tip the balance in their favor. It will be difficult to top the size of GE's bid, which would amount to the American manufacturer's largest in its 100-year-plus history. Secondly, GE can afford it. Alstom would be hard-pressed to find another company sitting on $57 billion in easily deployable overseas cash.
What's more is that the actual integration with GE -- despite the company's different geographies -- looks quite manageable for operations of this size because of complementary interests in the thermal, renewables, and grid businesses. To top it off, GE's CEO Jeff Immelt seems inclined to pull out all the stops to push this deal through, whether its through schmoozing with top-ranking French officials or touting his ambitious plans to create 1,000 French jobs.
Still, there are plenty of French officials who would happily turn a cold shoulder on GE as it looks to snatch up the crown jewel of France's industrial sector. The whole saga, in fact, seems to have reawakened the formerly dormant idea of protectionist sentiment in recent months. France's minister of economy, Arnaud Montebourg, even went so far as to push through a broader law that provides the government more leeway with which to deny foreign takeovers.
Exactly how this would come into play when evaluating a German-Japanese alliance versus an American interloper is unclear. What it does do, however, is give France plenty of room to maneuver according to the whims of the state. And, thus far, the state's seemed to favor stretching across its border with Germany to reaching across the pond for GE.
For perspective, I pulled together some relevant stats on the suitors who are currently involved in the contest for Alstom. I've also included my thoughts on the likely buyout strategy to be employed by Siemens and Mitsubishi Heavy Industries:
Source: Bloomberg Businessweek, Morningstar, Wikipedia.
Unlike GE's proposed all-cash bid for Alstom's power businesses, Siemens and Alstom are likely to be attracted to Alstom's transportation and energy assets. I imagine they'll enlist a different approach as well, setting the stage for an asset swap rather than forking over cash for Alstom's goods. It's also likely Siemens will divert certain assets to Mitsubishi to avoid creating a dominant industry giant (close to a monopoly) in Europe.
As I've mentioned before, a strain of disbelief exists among analysts and the media regarding Siemens intentions. Are powerful government interests dragging the German giant into the mix kicking and screaming? Considering Siemens' pending job cuts and recent $1.3 billion acquisition of Rolls-Royce assets, the answer seems to be "yes".
For now, however, the wheels are in motion for a Siemens-Mitsubishi proposal to land on Alstom's desk by Monday. Even with this new alliance, there's little reason to believe a more lucrative offer will entice Alstom's board, which has already agreed to the terms of GE's binding offer. France's bureaucrats could be a roadblock for GE, of course, but I'm not sure they're fond of scattering Alstom's assets all over the globe either. From my perspective, GE's still sitting comfortably in the driver's seat, despite the entrance of new contestants.
