Nexans, the French cable manufacturer, is set to make a formal offer for Alstom's transmission and distribution unit for a sum believed to be around 1.05 billion euros. The bid places a higher valuation on Alstom's T & D division than that implied by an earlier bid from Areva, France's state-owned nuclear power group but is still markedly lower than Alsom's own valuation of 1.5 billion euros. However Nexans has made it clear that it will not take part in a competitive bid process, preferring intstead to wait for the outcome of Areva's bid.
The disposal of the T&D unit is a crucial part of Alstom's plan to reduce its debt load from 5 billion to 2-2.5 billion euros by March 2005. At Alstom's annual shareholders' meeting in early July 2003, chief executive Patrick Kron confirmed that the group had received a 1 billion euros offer for the unit from Areva.
Unlike Areva, which can pay cash, Nexans has yet to secure financing for the deal. Chairman Gerard Hauser confirmed that the firm would need a capital increase to finance an offer. It proposes to raise funds from shareholders by means of a huge rights issue, and through increased lending from its banks. The market puts Nexans' capitalisation at 350 million euros, only a third of that of its target, and the prospect of its greatly increasing its net debt, standing at 142 million euros in June, has raised some eyebrows among analysts. Nexans says its banks and shareholders are behind the proposal, because it makes strategic sense. Analysts have said recently that in the light of poor peformance over the last year Nexans probably does need to diversify; although its first half operating losses this year narrowed, thanks to cost cutting, to 2 million euros from 11 million for the same period in 2002, the company expects to post a loss for the year as a whole.
Nexans has said that it is ready to form link-ups with other bidders for part of the T&D unit, possibly with Areva itself. However, it would want operational control.
Alstom has completed the major part of the sale of its medium gas turbines and industrial steam turbines businesses to Siemens. This was the second of two transactions announced in April, and completed on 30 April, by which Alstom sold its industrial turbines businesses for an enterprise value of 1.1billion euros and net cash proceeds of 950 million euros.
Completion of the transaction follows formal clearance from merger control authorities, principally the EU Commission and the U.S. Department of Justice monopoly/anti-trust agencies.
Some minor parts of the business have still to be transferred to Siemens pending completion of legal procedures in some jurisdictions. But the now enlarged Industrial Applications Division of Siemens PG can commence operations as scheduled on October 1.
In May, PG had acquired Alstom's small gas turbine business (3 - 15 MW) based in Lincoln, UK. This second transaction consists of acquisition of the medium gas turbine business (15 - 50 MW) in Finspong, Sweden, and industrial steam turbines rated up to 100 MW with facilities in Sweden, Germany and the Czech Republic. For a time, probably a year, the acquired business will not operate under the Alstom name but as a subsidiary of Demag Delaval Industrial Turbomachinery NV, a company based in the Netherlands.
Siemens sees the acquired business as an excellent match with its existing industrial power and compressor range.
Alstom has received the first part of a r300 million loan, part of its 2.8 billion euros refinancing scheme, even though the French government backing it has not yet filed a restructuring schedule for approval by EU regulators. In theory, such approval has to be gained before any aid can be given, but in practice the process makes delays that are too long for company survival or national governments to tolerate. The aid takes the form of part of bridging loans plus a series of financial guarantees for new contracts. Its speedy implementation came at a time when Alstom's liquidity crisis was bringing it near to total collapse, leading to calls from leading French politicians, in particular the former finance minister Alain Madelin, for a parliamentary enquiry into the rescue package and the circumstances of Alstom's near-demise. He pointed out that the French people have a right to know about ministerial deals that can affect them personally - the 3 billion euros being spent on Alstom is equivalent to a 6 % reduction in income tax.
Nick Salmon, executive v-p of Alstom, said that the group had access to 200 million euros of a 600 milion euros short term credit facility, and to some of the 3.5 billion euros in bonds against future contracts provided by core lenders.
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