It’s takeover time as firms large and small consider their priorities.
The European industrial landscape is about to be transformed, as French conglomerate Alstom, whose rail business stretches from trams to high-speed trains as well as track and signalling, faces being broken up. It wants to sell its energy business - accounting for 70 per cent of turnover - to US behemoth General Electric (GE). Germany’s Siemens is also waiting in the wings to make an offer for the unit.
Meanwhile, Siemens has just unveiled a strategic overhaul to cut down its divisions from 16 to nine and put more focus on automation and electrification services to challenge ABB and GE. It will also streamline its corporate structure. The company said its second-quarter profits had risen 16 per cent to €1.57bn, but this was well below analysts’ expectations.
Both Siemens and Alstom are under pressure from their respective governments to forge a deal as an alternative to GE’s $13.5bn bid for Alstom Energy. The governments are keen on a Franco-German plan, under which Siemens would hand over around half of its transport business (plus some funding) in return for taking over Alstom’s thermal and renewable power and grid divisions.
Under this assets swap, Siemens would in effect lead the energy side and Alstom the transport. There is not likely to be as much cash on the table compared to GE’s bid, although at time of writing, Siemens had not made a formal offer.
For Alstom, however, a sale to GE makes more sense. The French firm, which announced a 28 per cent drop in full-year profits to €556m, could use GE’s cash to strengthen its transport business and pay off debt. Alstom pointed out - for the ears of French ministers - that its transport business had seen a “particularly dynamic” second half of the year.
It seems that a lot needs to be sorted out before the end of May, the minimum timescale the interventionist French government needs to consider its position over the rival bids. The problem is that Alstom’s board of directors formally accepted GE’s offer early in May. The directors and shareholders will not be quite so concerned over the US corporation’s role in Europe’s energy market.
On the other hand, merging Siemens’ trains unit into Alstom’s could give the latter much more clout in the global rail transport marketplace. And for Siemens the energy side of the deal could be a coup as, according to analysts, the German company would be on course to become the global leader in power generation and transmission.
But whatever the final outcome, it seems clear that a new configuration of major industrial activities, not just in Europe but globally, is likely to emerge.