Mitsubishi Heavy Industries, Ltd (MHI) and Siemens AG have joined forces to make a €7 billion offer for French engineering group Alstom.

Under the proposal, Siemens intends to acquire 100% of Alstom’s gas business including related service contracts for €3.9 billion in cash.

MHI has offered Alstom €3.1 billion in cash for a 40% stake in its steam and nuclear business, 20% of its grid business and 20% of its hydro business. MHI also contemplates becoming a shareholder in Alstom through the acquisition of a stake in the company, up to 10%, from Alstom’s biggest single shareholder Bouygues.

MHI says its proposed alliance with Alstom would enable the creation of more than 1000 jobs in France, while Siemens intends to offer a job guarantee for three years in France and Germany following transfer of the gas business. Siemens also intends to explore opportunities with Alstom to create a ‘European rail champion’ for the world market.

Alstom said the proposal, received 16 June, would be reviewed by the ad hoc committee and submitted to the Board of Directors in the coming days. Alstom is also considering an offer from GE to acquire its energy activities for €12.35 billion ($17.1 bn).

Siemens, which plans to establish its European headquarters for the combined gas service business in France, intends to secure the supply and services to all Alstom’s existing energy customers through its global service network. It believes that Alstom’s main product lines are largely already allocated to specific sites, which would facilitate the integration into Siemens’ activities. Siemens is also be prepared to become a long-term ‘anchor’ shareholder in a combined transport business.

MHI says that if the merger goes ahead it would enter the grid business, and intends to contribute to its global expansion, including in its home market Japan.
It believes that the alliance formed by Alstom and MHI, two highly competitive thermal power generation companies, will have a worldwide coverage and benefit from the combination of MHI’s strong operating base in Asia, and Alstom in Europe, Middle East and Africa.
MHI would want to enter into various co-operation agreements with Alstom in R&D, with the joint development of new efficient products, in a joint bidding approach to large projects, in common procurement and joint sourcing of mission-critical components, in best practice in manufacturing technology, quality control and safety, and a shift of workload to Belfort when possible, and in products and services – the promotion of Alstom’s technologies in Japan, cross- selling of Alstom and MHPS products, sharing an after-sales service network.

MHI and Siemens consider that their proposals would strengthen the Alstom brand considerably as a sustainable player in energy and transport. The transaction would also provide additional financial flexibility to Alstom and would strengthen its balance sheet. The proceeds from the transaction could secure future growth and would allow investments in innovative technologies. Alstom would remain listed in France and focused on almost all its current activities, and these businesses would remain under Alstom’s leadership.

Shunichi Miyanaga, president and CEO of Mitsubishi Heavy Industries commented: "We have been in successful alliance with the French company Areva within the nuclear power field. I believe our collaboration with Alstom in the turbine business will give birth to another Japan-France alliance with superior technological expertise, which will be able to address the needs of emerging nations. In thermal power generation, utilisation of high-efficiency combustion technology of globally abundant low-grade coal is poised to grow. In environment, with respect to measures addressing particulate matter, significant technological synergies are expected. Investment in grid would better position MHI for the possible power deregulation as well as the separation of power generation from transmission/distribution. We believe that this proposal will create a partnership for our long term co-prosperity based on mutual trust".
"This move would be a win-win solution for all related parties. Alstom would remain an independent energy and transport player with a strong brand. Its energy business would be strengthened through the partner MHI and we intend to explore opportunities with Alstom to create a European rail champion for the world market", said Joe Kaeser, president and CEO of Siemens. "This transaction would further enhance our value chain of electrification by expanding our installed base in gas. This fits well into Siemens’ ‘Vision 2020’ to strengthen its core activities."