IN DEPTH: Siemens and Alstom

Joe Kaeser, CEO of Siemens

Joe Kaeser, CEO of Siemens

There are a number of reasons why Siemens’ counter-bid for Alstom is not a huge surprise – and some of those reasons touch the renewables sector.

Like Siemens itself, Alstom’s power interests are many and varied, spanning conventional and renewable generation, and the grid – not to mention nuclear, which the German group has left. The French company also has a major transportation unit.

Some of those factors will loom larger than others in Siemens’ thinking, but there is no question that renewables will be part of the equation.

For example, a consolidation is due in the global offshore wind business, industry experts agree. As in high-speed trains, Siemens’ counter-bid would thwart GE’s attempt at gaining a strong foothold in areas where its German rival Siemens so far is way ahead – and a stronger position in Siemens’ backyard in Europe.

Although details about the counter-bid from Munich remain sketchy, Siemens doesn’t deny that its chief executive Joe Kaeser has already met Alstom’s boss Patrick Kron back in February to discuss a closer co-operation.

And Siemens was quick to respond to a call from French economics minister Arnaud Montebourg to signal its willingness to make a counter-offer for Alstom.

Kaeser in a letter to Kron offered to possibly take over Alstom’s energy division, including offshore turbines and grid links for some €10bn ($13.87bn) to €11bn. In exchange, Siemens could cede large parts of its train division to Alstom, including high-speed train technology.

But what would really be in it for Siemens, specifically in relation to renewables?

The German industrial giant would no doubt be helped to cement its already dominant position in the offshore wind turbine market.

While Siemens in 2013 held 52% of the German offshore sector, Alstom only later this year will start to produce its 6MW Haliade offshore machine on a serial scale. But the French company has also already secured a 1.4GW pipeline from French offshore tenders, and gained a foothold in the fledgling US offshore wind market.

While the French pipeline certainly is valuable, Siemens doesn’t really need the Haliade. It already has its own 6MW offshore model, and with a market share of 69% in Europe is already the undisputed global leader in offshore wind turbines.

The same is true for offshore grid links: Alstom last year managed to win an order for the 900MW DolWin 3 HVDC link in the German North Sea. While that inserted an element of competition in the multi-billion euro market, Siemens has won all other bids for major German offshore grid connections.

For GE, the take-over would make much more sense as Alstom could complement its portfolio in the areas Siemens is ahead, in particular offshore wind, both in turbines and grid links.

In onshore wind, Siemens would secure an instant, strong position in the Brazilian market. A GE Alstom acquisition would help the US consolidate its dominance there.

In the wider picture, giving up its train business would be a major concession by Siemens. Although Siemens had encountered some painful delays in German train deliveries in recent years, profits in its Infrastructure & Cities sector to which trains belong recently have soared, making it the company’s fastest-growing area.

Alstom CEO Kron has shown little interest in a closer cooperation with Siemens in the past, and he is known to be no friend of the German company since he fought off a takeover attempt by Siemens when Alstom was in financial trouble ten years ago.

But back then, Alstom had the backing of the French government, which is different now. Paris regards Alstom as “a symbol of industrial strength and French engineering art,” economics minister Montebourg said. But he favoured the creation of “two European and world-champions” in the area of energy and transport as a result of a linkup with Siemens over an American takeover.

Siemens CEO Joe Kaeser will meet with Montebourg and President Francois Hollande later today.

Although France is never shy in its industrial policy to fight for its own national advantage over that of its friends across the Rhine, a Siemens take-over of parts or all of Alstom is apparently seen as the lesser evil in Paris.

Probably, the German company is expected to be gentler on labour issues than GE. Kaeser indeed has already said that a deal could include a three-year job guarantee for Alstom’s French staff.

Having no stake in Alstom, the French state can’t legally impede GE from a takeover. But as Alstom to a large degree depends on French government orders, Paris has a strong bargaining chip.

Thwarting GE from taking over Alstom would come at an awkward time, however, given that the European Union is currently negotiating a transatlantic free trade deal with the US.

Blocking a company from a friendly nation from a takeover goes against the essence of such an agreement.

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