samedi 20 décembre 2014

Alstom: an historical general assembly, which does not solve everything

Alstom: an historical general assembly, which does not solve everything

VERONIQUE LE BILLON / deputy service manager and LIONEL STEINMANN / reporter, on dec. 18th

Courtesy Alstom

The general assembly of shareholders is convened on Friday morning to agree to General Electric’s buyout. The State’s role, the future of joint-ventures and of the new Alstom remain blurred.

Courtesy Wikipedia

Not a thrilling assembly to come Friday morning for Alstom shareholders. They are expected to ratify the buyout agreement of the energy sector to General Electric (GE), namely amounting to 70% of its turnover, by itself amounting to €20 billion. In any case, Alstom will obtain this ratification even if the two-third majority is not reached.
At the closure of the transaction scheduled for mid-2015, the agreement plans to pay €3,5-4 billion to Alstom shareholders, whose first one is Bouygues (owning a 29,3% stake). This amounts is to be compared to the €7,3 billion to be pumped by GE in the new company and the “reshaped Alstom” will be limited to its former transport division but it will keep a presence in energy through three joint-ventures, on the State’s request. Whoever will vote for this agreement among the shareholders, it won’t clear anyway the uncertainties weighing on the group’s future.

Energy division under pressure
The staff representatives were consulted in late October during Alstom’s European Forum (namely the group’s European consultative staff institution) and 15 of them voted for GE’s buyout project against 7. If the European forum “sees opportunities”, the institution also expects “some wide risks for European employment”: The report released in late October listed some observations: Alstom is present on several small industrial sites, whereas GE is concentrated on few major ones; then Alstom focuses on internal production whereas GE buys quite a lot outside; finally there are over-capacities in gas turbines.
One of the major challenges of the buyout consists in improving Alstom’s operational results, and the group is far less profitable than GE, which claims for a synergy target amounting to “USD1,2 billion yearly from the fifth year”. Even if Alstom keeps some activity in networks, renewables and nuclear activities, the group shall never been decision-maker. Moreover, GE has not unveiled its long-term strategy in some sectors.
Transport division facing uncertainty
For months, Alstom’s managers have hammered this: focusing the group around its transport branch is a relevant opportunity. Yet several observers are sceptical, even if the company says that its order book reaches “top levels”, particularly with the €4 billion tender won in South Africa for the delivery of 600 suburb trains. Then the railway signalisation division is also ready to reach rocket records, improved by integrated activities from General Electric. But the market of high - speed trains will surely plummet in the coming years. In fact the order book has begun to fall down in French plants (see “les Échos” of November, 6th). Then, Alstom’s rolling equipment is positioned in high range, whereas emerging economies are looking for less sophisticated but less expensive products. International competition is weighing seriously on the margins, and the situation is expected to worsen, with the merger launched by CSR and CNR, two Chinese sectors behemoths, which are weighing each by each twice as Alstom. Maybe Alstom will build some partnerships but won’t be able to avoid any buyout or merger, according to a sector specialist.
The State’s role remains unclear

In June, Arnaud Montebourg (the former Economy Minister) announced that the State would subscribe to a 20% stake in Alstom. But the Financial Authority judged that the agreement made between Bouygues and the State – namely a partial buyout of Bouygues’ shares by the State – was in fact a concerted action, which froze any action from the State for now. “This decision pleases everybody”, said a source in Bercy (Ministry of Economy and Finances). Anyway, the State has some times before moving: the agreement grants to the State twenty months after the closing of the transaction to buy back the stock. Furthermore, the French Association of minority stockholders has summoned the State and Bouygues to the Court in order to obtain the cancellation of the security lending transaction.

Courtesy the Frenglish affaires

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