GE Seeks to Expand Footprint in India with $390 Million Offer for Two Alstom Companies

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Following the macro deal pitched by General Electric Company (NYSE:GE) (Fairfield, Connecticut) for Alstom (OTC:ALSMY) (Paris, France), the U.S. company has proposed a $390 million open offer to acquire the publicly held shares in Alstom India and Alstom T&D. Alstom India has business interests in power generation and transportation, while Alstom T&D operates in the transmission and distribution sector.

The conclusion of the offer for the Indian companies is subject to a takeover by GE in the $16.9 billion main deal. Alstom owns a 68.56% stake in Alstom India and 75% in Alstom T&D.

The acquisition of Alstom's Indian companies would help GE expand its business footprint in the country, giving it an entry into the transmission and distribution sector, as well as the air pollution equipment business, according to industry sources.

The move could also ramp up Alstom India's business growth, both within India and for exports. Alstom has a tie-up with Bharat Forge (BSE:500493) (Pune, India) for the manufacture of steam turbines, and a licensing pact with BHEL (BSE:500103) (New Delhi, India) for supercritical boilers. Industry observers believe that these partnerships would continue after the acquisition.

"Indian power utilities are demanding higher-rated equipment, and the consolidation can create economic scale for more research and localizing for domestic market needs," said Kameswara Rao, the head of PricewaterhouseCoopers LLP (PwC) energy and utilities. "India could also emerge as an export platform for GE, especially in the T&D space."

"The real jewel in the crown for Alstom India is the listed business of Alstom T&D," an analyst said. "Alstom's global suitor will get this prized asset, But Alstom India, with or without GE, already has to contend with a host of local and foreign competition, such as BHEL, ABB (NYSE:ABB) (Zurich, Switzerland), Crompton Greaves (BSE:500093) (Mumbai, India) and Chinese equipment majors. This is unlikely to change anytime soon."

Both power generation and distribution sectors in India are facing challenging times, but experts say the contraction in business on the generation side has been higher. "A recover in the T&D space will be quicker, and GE will gain entry into the space," said Sanjeev Zarbade, the vice president of private client research group Kotak Securities.

For related information, see May 2, 2014, article - Siemens, Rolls Royce, Alstom, GE and Daimler Play High Stakes Power Acquisition Game, and March 7, 2014, article - Alstom-BHEL to Supply Boilers for NTPC's 1,600 Megawatt Power Project in Odisha.

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