* GE said to be in talks to buy Alstom for USD13bn
GE is reportedly in talks to buy Alstom for USD13bn (reported bid price) in a move which has the
support of Bouygues (c.29% stake), according to Bloomberg. Alstom is going through a balance
sheet repair exercise at the moment with the recent disposal of a heat exchanger business to
Triton for EUR730m and a dual track to either IPO or sell a minority stake in its transport business
to an industrial partner. But overall Alstom remains a relatively small player in most of its power
segments. See our report Eyes wide open
* Reviewing the strategic rationale for GE
GE is present in all of Alstom’s businesses and purchased Alstom’s power business in the late
1990s. An acquisition would represent for GE a business extension in passenger rail, a synergetic
combination in transmission and a strategic takeout of a weaker competitor in power generation.
Other parties that could be interested in acquiring Alstom include Siemens and Areva in our view.
Political support is key given Alstom’s large presence in France with 18k employees and 21
manufacturing sites. Whatever happens, it would put into question Alstom’s sustainability as a
stand-alone entity.
* Transaction metric – 13x EBIT March 14
A USD13bn price tag would imply GE paying EUR30/share for Alstom (+c.25%) and transaction
multiples of 0.7x sales and 12.9x EBIT FY March 14 before synergies. Alstom trades on 10.6x
EBIT March 15, a c.15% discount to the sector. Alstom paid 16x EBIT for Areva T (December
2009); Siemens paid 12x EBIT for Alstom’s industrial power business in 2003. The few
transactions in the rail market made in the past range from 0.2x to 0.7x sales. Applying historical
transaction multiples to Alstom’s divisions on a March 2015 basis would imply a EUR26 share
price. A preliminary estimate of synergies ranges from EUR400m-600m, implying EUR6-9 per
Alstom share, with the lower end consistent with the implied bid premium. This analysis excludes a
review of costs linked to product rationalisation in wind or power. Ahead of any confirmation/denial,
we believe Alstom’s share price could surge c.10-15% today (implying 50% success rate).