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German company Siemens Aktiengesellschaft entered the fray for acquiring French industrial giant Alstom, as the latter stalled the acceptance of General Electric Company’s (GE - Analyst Report) bid till May. Alstom, which operates in the power generation and transport markets, is a French conglomerate that pioneered TGV high-speed trains.
    
As General Electric proposed a binding $16.9 billion offer to take over Alstom’s Thermal, Power and Grid businesses, Siemens cropped up as a prospective counter-bidder as it filed a declaration of interest to Alstom’s board.

As a precondition, Siemens has demanded access to Alstom’s financials and the say-so to interview its management over the next few weeks. After conducting due diligence, Siemens will decide whether to make a formal competitive offer.

As per media reports, in the tie-up, Siemens’s offer would most likely involve swapping some of its rail assets for the French conglomerate’s energy division, thus creating two “European champions” in transport and power engineering, as French Industry Minister Arnaud Montebourg said.

According to some sources, Siemens’ interest in Alstom is a defensive move at its core, triggered by its perception of General Electric’s bid as a competitive threat.

This development came close on the heels of Siemens’ agreement to buy a portion of Rolls-Royce’s energy division that makes small gas turbine generators for the oil and gas industry and small industrial power plants. The deal, reportedly valued at about £1 billion, is still under negotiation.
    
GE Proposal

General Electric, which has reportedly been in talks to buy Alstom’s power-generation and transmission businesses for several weeks, finally made a formal offer today. The company’s $16.9 billion bid, consisting of $13.5 billion enterprise value and $3.4 billion of net cash, is being reviewed by a committee of independent directors. The deal, in tune with General Electric’s corporate strategy to return to its industrial roots, promises excellent return on capital, supply chain efficiencies and deep synergies.

The transaction, if finalized, will be accretive to earnings immediately, and the company expects to generate over $1.2 billion in annual cost synergies after 5 years. If the deal materializes in General Electric’s favor, it would mark the biggest acquisition ever for the company and would significantly enhance its operations in a recovering Europe.

With negotiations underway, General Electric currently seems to be ahead in the politically charged takeover battle as Alstom’s board reacted positively to the company’s formal bid.

Political Intervention

Any transaction of this scale is bound to attract intense regulatory scrutiny, and the French Socialist government has intervened, proclaiming itself to be an interested party as state-owned utility EDF and the national railways are key clients of Alstom. The government is not favoring either bidder, and has clarified that its priority is ensuring preservation of jobs at the French firm, and safeguarding the nation’s energy independence.

Some analysts believe that a tie-up between Siemens, valued at $144 billion, and Alstom, with a market capitalization of about $11.5 billion, could raise antitrust issues.

However, if the deal consummates, Siemens would become one of the leading global equipment makers for power plants and electric transmissions. Also, the merged train assets would bring together Siemens’s ICE high-speed trains and Alstom’s TGV, creating a France-based rail leader.

Alstom’s independent review committee has assured that it will weigh the strategic and industrial merits of General Electric’s proposal and Siemens’ conditional offer, taking the interests of all stakeholders into consideration.

Siemens presently sports a Zacks Rank #2 (Buy). Other noteworthy companies in the sector include GrafTech International Ltd. (GTI - Snapshot Report), holding a Zacks Rank #1 (Strong Buy) and Garmin Ltd. (GRMN - Analyst Report), carrying a Zacks Rank #2.

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