Why General Electric Company (GE) & Alstom SA (ALO) Deal Is Attractive?


The French hurdle is clear for General Electric Company (NYSE:GE) as it gets nod from Alstom SA (ALO), the French equipment maker, to buy all of its power business in a $17 billion offer. During an interview on CNBC, Giles Sitbon, who is a senior fund manager at Sycomore Asset Management revealed his views about the deal between the two companies.

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Attractive Proposition

General Electric Company (NYSE:GE) had presented a binding offer to Alstom for a fixed proposed price of $17 billion, which has been unanimously approved by the Board of Directors of Alstom. Commenting on the deal, Sitbon said,

“I think it’s a good deal for Alstom and for General Electric, because Alstom was in a precarious financial situation, needed to strengthen its balance sheet and for GE, this deal is going to generate a large amount of synergies, $1.2 billion over the next five years and on a fully run rate basis, so this is attractive for both companies.”

Sitbon said that from the shareholders of Alstom’s point of view, “the asset value at which this deal is being proposed is attractive from an economic standpoint.”

French Capitalism

Ahead of the deal, the French government is offering to buy 20% of stake from Bouygues SA, which said that the option with the government will vest for 20 months and the period of the same will begin after the Alstom and General Electric Company (NYSE:GE) concludes their deal. As far as the fair price of the deal is concerned, Sitbon said

“Based on our calculation with it, Alstom is probably worth, before holding this account, 32 to 33 Euros.”

He added that after discounting for some of the factors, the fair price should be around 30 Euros.

Responding to the role of French Capitalism in the deal, Sitbon states that the French capitalism is not different from other countries, which would have taken similar stands like the one taken in the current case. Sitbon explains that the need for the French involvement arose to satisfy multiple stakeholders, like the government, the union, customers among all.

James Melcher‘s hedge fund Balestra initiated a position in General Electric Company (NYSE:GE) in the first quarter of 2014 and now owns 1.38 million shares worth $35.59 million. Talara Capital Management, led by David Zusman raised its stake in General Electric during the same period by 41% to 282,100 shares.

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