Analysis: Siemens prepares strategic move on Alstom

GERMANY: When GE's offer for Alstom's Energy business was received, Siemens had begun putting together its offer for the division.

Siemens 6MW machine doubles up against Alstom's own 6MW Haliade turbine
Siemens 6MW machine doubles up against Alstom's own 6MW Haliade turbine
The German technology giant announced on 29 April that it will make an offer to Alstom, on condition that the French manufacturer allows it one month to access its company data and interview Alstom management, to enable a reasonable due-diligence assessment of the business.

One option may be for Siemens to combine its energy and transport divisions with those of Alstom, and locate their headquarters in Germany and France respectively. As the takeover unfolds, the wind sector looks like a fringe activity buffeted without direction.

Parallel histories

Siemens' wind and renewable business sector, with an annual turnover of roughly €5 billion, is the smallest of its ten business sectors, equivalent to about 7% of the €75.9 billion total 2013 revenue. And the company's focus on conventional energy business, especially oil and gas, is underlined by the choice of Lisa Davis as designated new head of energy.

She moves from the post of vice president of strategy, portfolio and alternative energies at Royal Dutch Shell. The oil and gas giant pulled out of wind and solar energies in 2009, and uses the term alternative energies to describe mainly biofuel activities in Brazil.

Alstom's wind and renewable business is also the smallest of its four divisions, with sales of €1.83 billion in the business year 2013/2014, or 9% of the €20.3 billion total revenue.

All three companies have grown through acquisition. Siemens entered the wind sector by buying Danish company Bonus in 2004, after GE had bought the wind turbine manufacturing assets of the bankrupt Enron Corporation in 2002. Alstom followed suit by buying Spanish turbine manufacturer Ecotecnia in 2007.

Market consolidation

Now, after a decade of wind activities, Siemens' takeover of Alstom's energy division would partly double up wind technologies. In particular, its onshore D3 direct-drive 3.0MW and 3.2MW offerings would be augmented by Alstom's geared 2.7-3.0MW turbine models, while Siemens' D6 6MW direct-drive offshore platform would be mirrored by Alstom's own 6MW direct-drive Haliade turbine. The two 6MW turbines are both in the offshore test phase, Alstom's since December 2013, Siemens' since January 2013.

Product Crossover

The potential co-investor option provided by Siemens Financial Services in capital-intensive offshore projects gives Siemens a strong profile, and acquisition of Alstom could remove a competitor from the offshore market. Offshore turbine players are seeking to spread the offshore wind risk in joint ventures, most recently Vestas Wind Systems and Mitsubishi Heavy Industries, which announced the official launch of their 50/50 offshore wind joint venture MHI Vestas Offshore Wind in April.

Areva revealed its exclusive negotiations with Gamesa on their planned joint venture "to be a European champion and global leader in offshore technology" in January. Accordingly, Areva has placed its wind sector among "discontinued activities" in its renewable energies business group.

With Siemens set to implement its own new strategic plans to 2020, as aired on 7 May, focusing on growth fields in the areas of electrification, automation and digitalisation, the Alstom option was unexpected.

Siemens CEO Joe Kaeser stressed on 7 May that the company's interest in Alstom is entirely serious, and that the final decision will be made independently of outside political or other pressures. The due diligence also gives Siemens a unique chance to shine a light into the depths of Alstom's business and financial data, on where costs are high and where money is earned — for instance its business in the low-price Brazilian wind market.

An unpalatable side effect to the Alstom board supporting a Siemens transaction and rejecting GE's offer is that Alstom would then owe GE a break-up fee of 1.5% of the purchase price, at least €172 million.

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