Areva Likely to Sell T&D Division to Fund Long-Term Development Plan

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Researched by Industrial Info Resources (Sugar Land, Texas)--A world leader in the civil nuclear field, Areva SA (EPA:CEI) (Paris, France) has announced that it intends to sell its Transmission & Distribution (T&D) Division in order to raise capital to maintain its healthy balance sheet and finance its long-term development program. The supervisory board of the group has asked the executive board to place the division up for sale, and the group will launch an open call for bids. Depending on the interest generated, the price offered, and the bidders' industrial and labor projects, Areva will make a final decision by the end of 2009 regarding a potential buyer and whether it will sell the division at all. According to the CEO, Anne Lauvergeon, even if the division is not sold, Areva will not change its investment plans but will start looking for alternate ways to raise capital.

The company has already been approached by a number of potential buyers. The world's third-largest power plant builder, Alstom SA (EPA:ALO) (Levallois-Perret, France) was the original owner of Areva's T&D Division. Alstom has frequently expressed interest in buying back the unit if put up for sale. Alstom and the world's largest circuit-breaker manufacturer, Schneider Electric SA (EPA:SU) (Rueil-Malmaison, France), may jointly bid for the Areva T&D Division. Lauvergeon, however, has always opposed a merger with Alstom.

Areva has also made the decision to open up 15% of its capital to industrial and strategic partners. Investment certificate holders will get an opportunity to participate in the scheme, and the company will also launch an employee-shareholder program. Areva may also sell off its stakes in STMicroelectronics NV (NYSE:STM) (Geneva, Switzerland) and Eramet (EPA:ERA) (Paris). The decision to raise capital was finalized after Areva reported a drop of about 21% in its profits for 2008, which occurred mainly because of huge losses on a nuclear project in Finland and a drop in the price of uranium.

France's Prime Minister François Fillon said that the French government owns 93% of Areva and that the company requires billions of dollars to close down its aging nuclear power plants, develop uranium mines and acquire the stake owned by Siemens AG (NYSE:SI) (Munich, Germany) in a joint venture for manufacturing nuclear reactors. The new moves will enable Areva to become a global leader in the nuclear energy sector, and focus on all aspects of nuclear energy production, ranging from uranium mining to the recycling of atomic waste, including enrichment. According to an estimate made last year by the Nuclear Energy Agency (Paris), the growing demand for electricity and reduction of greenhouse gas emissions could increase the demand for nuclear power reactors four-fold by 2050.

According to Lauvergeon, the capital raised by implementing these decisions will enable Areva to maintain its lead in the sector of carbon-dioxide-free energy solutions and also meet the increasing needs of the group's existing and future customers. She added that the decision to sell the T&D Division followed the division's tremendous growth since it became a part of Areva in 2004. She does not believe that selling off the division will hamper the growth of the T&D Division in any way. The division continues to be awarded with contracts by its global customers.

In June 2009, Areva's T&D Division was awarded four contracts worth about $70.5 million by India's leading transmission company, Power Grid Corporation of India Limited (BSE:532898) (PGCIL) (New Delhi), to set up four extra-high-voltage 765-kilovolt substations. The projects will be implemented jointly with Larsen & Toubro Limited (BSE:500510) (Mumbai) in Bina and Satna, located in the state of Madhya Pradesh, and in Lucknow and Ballia in Uttar Pradesh. Areva recently inaugurated a manufacturing site for extra-high-voltage transmission products in India. Some of the equipment required for the new substations to be supplied to PGCIL will be manufactured at this facility.

In May 2009, Areva's T&D Division was awarded a $112.9 million contract by Korea Electric Power Corporation (NYSE:KEP) (Seoul, South Korea) to supply converter stations for a 400-MW high-voltage direct-current (HVDC) bipole scheme that will connect the mainland with Jeiu Island. Under the contract, Areva will provide detailed engineering solutions, the overall system design and network studies for the scheme. The new scheme will work in combination with an existing 300-MW HVDC bipole connection, also installed by Areva more than a decade ago. The scheme is expected to be operational from 2012.

In May of this year, Areva's T&D Division, in partnership with China Electric Power Research Institute (Beijing) was awarded a $141 million contract by the State Grid of China to supply HVDC systems for implementing projects that will interconnect the Three Gorges Dam and China's Shangdong and Ningdong regions to Shanghai. The systems are to be delivered in December 2010.

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