Imminent list of objections normal procedure in such deals
Market newswires are claiming that General Electric (GE) will have to face a list of
objections from the European Commission (EC) regarding its planned purchase of
Alstom Energy (AE) imminently (this is normal procedure for well advanced deals).
In essence, this ‘objections’ document should present the EC’s concerns on how the
GE-AE deal could be anti-competitive. The ultimate sanction would be to block the
deal unless GE provides adequate remedies or compelling arguments that a state of
credible competition exists.
This ‘list of objections’ news flow’ has affected the Alstom share price negatively,
increasing fears that the Alstom Energy deal with GE will be blocked and leave
Alstom as a vulnerable stand-alone company with structural headwinds and poor
cash flow/balance sheet. Our view is firmly in the camp that the deal will go ahead
as planned – we think there are just too many participants (Alstom, GE, French
government) who want the deal to happen.
Alstom worth Eur32 with deal, maybe c.Eur19-20 without
Our analysis suggests that if the GE/Alstom Energy deal is blocked, then Alstom
energy/transport may be worth around Eur19-20. This is mainly because of the
structural headwinds that Alstom Energy is likely to face, and of course the absence
of the GE bid. Our price objective for new Alstom assuming the Energy deal goes
ahead is Eur32, which is based on applying a 11.5x EV/ calendar 2016e EBITA or
0.65x EV/Sales which see as fair given the backlog visibility and margin opportunity.
GE/Alstom has over 50% of Europe gas turbine market
A combination of GE/Alstom would have just over 50% of the European gas turbine
market with very strong positions in France, Spain and the UK. Most countries have
four or more suppliers and we see no reason why competitors other than Siemens
could not continue to offer products/services The exceptions have been Germany (a
Siemens dominated market) and also the UK (Alstom/GE dominated).