Power play

Siemens offers Alstom a real alternative

Siemens is offering Alstom a real alternative to General Electric. The German engineer and Mitsubishi Heavy Industries have proposed to buy some of the French company's energy assets together. This scheme offers less cash and more complexity than GE's friendly bid for the whole power division. It also makes less industrial sense. As such, it is still a Plan B. At least it's credible, and politically astute. Under the proposal, Siemens would buy Alstom's gas turbines for 3.9 billion euros in cash. The Japanese group would spend 3.1 billion euros on minority interests in three separate power businesses. MHI also proposes buying 10 percent of Alstom from construction group Bouygues, currently a 29 percent shareholder.

The Siemens-Mitsubishi offer appears aimed at the French government more than Alstom shareholders. Like GE's rival bid, it is rich in job promises. The nuclear business would also remain under French control, pleasing Paris. But this still manages to be something the board should consider in earnest. Alstom does not publish detailed numbers on its different energy activities, which makes comparisons difficult. However, analysts reckon the duo's offer is roughly competitive in financial terms with GE's bid, which places an enterprise value of 11.4 billion euros on the power business - worth 9.9 billion in cash after assuming pension liabilities.

Yet, the decision hinges not only on immediate valuations, but also on Alstom's post-deal prospects. The Siemens solution would introduce a minority holder into three businesses - steam and nuclear turbines, grids and hydro power. And Mitsubishi would continue to compete with Alstom in various energy markets. Alstom could cut its 3.3 billion euro debt and return some cash to shareholders. But it would remain an unconvincing conglomerate, with a train-making division and scattered energy assets. GE's offer, in contrast, is simple. And it would turn Alstom into a pure transport player. GE is now likely to improve its own proposal to placate the French government. With the Alstom board and Bouygues still on its side, that last push could be decisive.