Share

Alstom shares jump on $13bn GE bid

Paris - Shares in Alstom jumped more than 14% on Thursday after a report that US conglomerate General Electric was in talks to buy the struggling French turbine and train maker for about $13bn.

The companies may announce the deal as early as next week, Bloomberg cited people with knowledge of the matter as saying late on Wednesday.

If confirmed, a takeover offer from a foreign company would raise concern among politicians and unions in France, where Alstom employs around 18 000 staff, or 20% of its global workforce.

The group was bailed out by the French state a decade ago and has strongly relied on orders from national rail operator SNCF and utility EDF.

A deal could hand GE control of Alstom's high-speed TGV trains and rail-signal technology, and has the support of Bouygues, Alstom's biggest shareholder with a 29% stake, the report said.

However, one person familiar with the industry said GE's ultimate aim might be to buy Alstom's power business rather than its power arm - a deal that would leave its transport business as a separate publicly listed company in Paris. A report in the French Le Figaro newspaper also said the power division was GE's main target.

GE has said it wants to increase the earnings contribution of its core industrial manufacturing business to 705 from 55. Acquiring Alstom could cement its leadership as a provider of large infrastructure equipment to customers around the world.

"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.

Bouygues would not comment beyond saying that it supported Alstom's strategy. A GE spokesman declined to comment.

Low offer

Before the takeover bid report, Alstom shares had slumped 20% in the past 12 months on concerns over its cash flow. Those concerns prompted Bouygues to take a $1.9bn writedown on its Alstom stake in February.

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% to Wednesday's close, the reported price GE was offering still represented a 14% discount to the rest of the European capital goods sector.

Alstom shares leaped in early trade and closed up 10.9% at €27 compared with the potential offer price that works out 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 US 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 US 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.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
19.03
-0.7%
Rand - Pound
24.01
-0.5%
Rand - Euro
20.54
-0.3%
Rand - Aus dollar
12.36
-0.0%
Rand - Yen
0.13
-0.6%
Platinum
900.50
+0.4%
Palladium
1,002.25
+0.1%
Gold
2,209.77
+0.7%
Silver
24.53
-0.5%
Brent Crude
86.09
-0.2%
Top 40
68,080
+0.6%
All Share
74,278
+0.5%
Resource 10
56,967
+2.4%
Industrial 25
103,572
+0.3%
Financial 15
16,456
-0.4%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders