French engineering firm Alstom said on Friday it agreed to sell a core power unit to state-owned Areva for 950 million euros ($1.1 billion), dumping assets to raise cash while expectations mounted of a break-up.
The maker of ultra-fast TGV, cruise ships and gas turbines said in a statement it expects to pocket the much-needed cash from the the sale of the electricity transmission and distribution unit in January 2004.
The deal, which comes after the French state this week unveiled a 3.2 billion euro bail-out to avert the company’s collapse without angering the European Commission, is a key plank of a plan to shore up the debt-laden firm’s cash position.
But analysts said that, while the price was reasonable, Alstom will need to do more to raise cash and carve out a viable long-term future, effectively meaning a break-up of the industrial titan.
“This price is pretty much what we were expecting and it’s good to see Alstom is getting cash through the door, but it’s inevitable that the disposal program will have to be accelerated,” said Ben Uglow, analyst at Morgan Stanley.
The company, whose five-billion euro debt is six times bigger than its shareholder equity, had been hoping to fetch some 1.5 billion euros for the transmission and distribution (T&D) unit but banking sources have long said it would have to settle for much less.
Alstom was hoping to raise three billion euros from asset sales by March next year but said this week it might take longer, adding the T&D unit would would leave it short of the goal, at just 2.5 billion euros.
Alstom’s volatile stock, which has plunged some 90 percent in the past two years, gained 2.2 percent to 2.76 euros by 0905 GMT, beating a slightly softer French market.
More sales?
Quizzed about further sales, Alstom has said it would continue to focus on its core energy and transport activities, but industry sources and others close to the situation said major parts of the business would have to go and that German industrial giant Siemens was waiting in the wings with its wallet at the ready.
Chairman and Chief Executive Patrick Kron this week ruled out offloading Alstom’s high-profile TGV train business, prompting analysts to bet on an imminent sale of at least part of its turbine division.
“Transport seems to be the sacred cow, suggesting the power generation business could be moveable,” said Morgan Stanley’s Uglow. “Siemens is the obvious candidate and if I were the boss I’d be looking at all this very carefully.”
Siemens has declined to comment, although an insider at the Munich-based firm said it would buy “a big part of Alstom.”
The T&D deal came as no great surprise since the company said on Monday it would clinch the sale shortly and would get 950 million euros based on enterprise value. Cash-rich Areva confirmed the accord on Friday, adding it was subject to closing adjustments.
The unit generated sales of 3.2 billion euros in the last financial year, accounting for 15 percent of Alstom’s revenues. It employs 25,000 people in 70 countries.
Cash-rich Areva, which builds nuclear power plants, announced early in July it would make an offer for T&D, Alstom’s most profitable unit, prompting early murmurings that a government bail-out of the firm could be in the offing.