Mitsubishi seeks greater scale with Alstom bid
On the first day of business for Mitsubishi Hitachi Power Systems, a tie-up between two of Japan’s biggest engineering companies that launched in February, its president pulled no punches in outlining the new company’s ambitions.
The goal, said Takato Nishizawa, was to become “the number one global player” in the business of making gas turbines and other thermal generating equipment for the world’s electric utilities. MHPS, with combined revenues of $12bn, was sitting at number three.
“Our giant rivals GE and Siemens are advancing in Asia,” he said. “First we have to win in Asia. Then we will move into Europe, Russia, Africa, America, South America and so on, and take the fight directly to them.”
Unfortunately for Mr Nishizawa, Japanese groups were not the only ones looking to build scale to take on rivals.
Just two months after MHPS’s launch, the adversaries it was chasing were seeking to get even stronger. Germany’s Siemens and General Electric of the US have locked horns in a battle for Alstom, precipitated by a $16.9bn offer for the French company’s energy business from GE in April.
On Wednesday, MHPS’s controlling shareholder, Mitsubishi Heavy Industries, joined the fray, announcing that it was looking to join Germany-based Siemens in a bid to acquire Alstom’s power systems assets.
“Mitsubishi might have had a chance to catch up to GE or Siemens individually, but with Alstom added it would have been a different matter,” says Yunchao Zhao, an analyst at Credit Suisse in Tokyo.
GE and Siemens each earn about $20bn a year in energy-system revenues and Alstom earns more than $10bn; whichever group were to seize the Alstom business would become more than twice as big as MHPS.
Mr Zhao says Mitsubishi is particularly wary of GE, which has the biggest share of the world market for the largest-scale gas turbines – about 45 per cent – in which Mitsubishi also specialises. If GE were to buy the Alstom business, its share would grow to more than half, while MHPS languished at 20 per cent.
Joining forces with Siemens would further MHPS’s ambitions to expand outside of Asia, where it now makes more of its sales. Power-equipment companies are earning an increasingly large share of their revenues from after-sale service and maintenance, but the networks needed to support that model are expensive and time-consuming to build.
“It’s not just about manufacturing scale,” Mr Zhao says. “Mitsubishi has a presence in Asia but Siemens has strong networks in Europe, and that’s part of the appeal.”
As with many Japanese companies, Mitsubishi has been motivated to expand abroad by a shrinking market at home. Its nuclear energy business, in particular, has been under strain since the Fukushima disaster in 2011. Last year it won a tentative deal in Turkey to supply what would be the first Japanese-built nuclear plant since the accident.
It remains unclear how much money Mitsubishi would contribute to a joint bid with Siemens or how ownership of the Alstom assets would be divided.
Japan’s Nikkei newspaper reported on Thursday that they were planning to offer around Y1tn ($9.8bn) – a bid that Hitachi indicated it would support and potentially join in.
Siemens and Mitsubishi have said they will give more details by Monday along with a final decision on whether to go ahead with an offer.
Shares in Mitsubishi Heavy closed up 1.2 per cent on Thursday in Tokyo, against a 0.7 per cent fall in the Nikkei 225 average.
