Eduard Biller Simon Foucher GE / Alstom Merger Eduard Biller Simon Foucher

1 2 3 4 Agenda Companies overview Strategy Merger Story & Roadblocks Aftermath

General Electric The acquirer

Company History Founded by Thomas Edison as a combination of several electric businesses Over time reinvented itself Focus on industrial engineering now Until the financial crisis the focus was on financial engineering Divesting its financial assets now (spinoffs, sales, etc) Is still divided into an industrial and financial section

Company Trivia One of the largest and well-known companies worldwide Revenue of over 148 bn $ Earnings of over 15 bn $ Almost 600 bn $ in assets But almost 500 bn $ are accounted for GE Capital When looking on the industrial arm only, it has almost no net debt

General Electric Revenue 2007: 170 bn $ 2014: 148 bn $ GE Capital: 2007 38% of revenue 2014 29% of revenue

General Electric Profit 2007: 22.2 bn (54%) 2009: 16.5 bn (8%) 2014: 15.2 bn (46%) 32bn dollars in assets will be sold to WF

Overall change in company portfolio Spinoff (Synchrony Financial) Strengths: Overall change in company portfolio Spinoff (Synchrony Financial) Sale of NBC Leading position in several sectors Low restructuring costs in the following years Weaknesses: Problem with € and Oil Weak position in East Asia 1/3 of all orders are from regions who are dependent on commodity prices Shareholders can exchange GE shares for Synchrony Comcast buys NBC Due to divesture not systemic relevant anymore €: Others can undermine the deal + lower attribution from € Oil: Few orders from Oil and Gas industry

Alstom Target

Result of a Merger between Thomson-Houston Electric Company and Société Alsacienne de Constructions Mécaniques in 1928 Operates in three segments Grid Sector Power sector Transportation Thermal power Renewable power

Non-current assets: 13.2bn € Non-current assets: 3.4bn € Balance Sheet 2014 2015 Non-current assets: 13.2bn € Non-current assets: 3.4bn € Current assets: 16.8 bn € Current assets: 8.4 bn € Non-current: Goodwill, Intangible assets and PPE: 9.8 bn Working Capital assets by 7.7 bn Change in right side: - working cap liabilities 8.9 bn € to liabilities related to assets held for sale 15.2 bn € 30 bn € in assets 33 bn € in assets 21 bn € in assets held-for-sale

Income from operations: 268 m € Income from operations : 318 m € P&L 2014 2015 Income from operations: 268 m € Income from operations : 318 m € Net income: 556 m € Net income: -719 m € Bribery fine of 772 m $

Why does GE want to buy Alstom? Thermal Energy Compementary Steam/Gas Windpower Compementary Onshore/Offshore Hydro Power Alstom has a leading role Services Complementary position Grid Complementary position

Acquisition Timeline

Alstom stock never fully recovered from the recession

Start 2014: Pessimistic outlook Alstom Cuts Margin and Cash Flow Outlook as Demand Falls Plans to sell $2.7B billion in assets Including minority stake in Rail

Apr 2014: Industrial sector showing strength Alstom to Sell Steam Parts Unit for 1B$ S&P 500 Climbs to Record as Treasuries Fall, Oil Tumbles

April : Early rumors of GE bid 24th:Public news that GE and Alstom discussing potential deal 13B€ Transition; largest GE acquisition Bouygues (29% shareholder of Alstom) on board

April: Followed by rumors of competitive bids 27th: News of alternative bid from Siemens Exchange for part of its rail transport arm plus a cash offer as good as GE's 30th: GE confirms12.4B€ (17B$) bid for Alstom SA’s energy business

May: Government steps in 5th: French government states that it will not back GE’s bid GE must improve bid and combine two companies’ rail businesses; lobbies Siemens to participate in auction 7th: Siemens CEO says he won't be forced into a white knight bid for Alstom

May: Government Insists 14th: France issues decree nicknamed "décret Alstom" Power of the state to veto takeover of "strategic interests" (energy, water, transport, teleco, health) 22nd: GE extends bid to allow discussions with the government

June: Competition becomes official 16th: Siemens &Mitsubishi submit a competing proposal Siemens acquire Alstom's gas turbine activities for 3.9B€ MHI to form JV with Alstom , acquiring stakes in power for 3.1B€

June: Bidding heats up 19th: GE revised its bid, same price, but with a lower cash transaction value. Form a 50:50 JV combining in renewable and electric grid business and another JV in steam turbine and nuclear power. GE to sell its rail signaling business to Alstom

June: Bidding heats up 20th: Siemens and MHI modified their offer MHI increasing its stake to 3.9B€ (+800M€ from 3.1B€) Siemens increases offer to 4.3B€ (+400M€ from 3.9B€) Economy minister stated he would block both bids & French government was now backing the GE offer

June: GE Wins 21st: Alstom board met and backed GE's revised bid 22nd: French government agreed terms with Bouygues Taking a 20% stake in Alstom from Bouygues shares at a 2–5% discount on a value of a minimum of ≈€35

Dec: Almost final approvals 19th: Shareholders approved the transaction by 99.2% Bouygues under pressure to make a deal with government due to regulation issues in the teleco sector

EU Steps in Early 2015 the EU Competition Commission began an examination process Deal leaves only Siemens as GE’s main rival in Europe Concerns of stifling innovation price rises

Sep 2015: Final regulatory approvals 8th European Union and US DOJ approved the deal Subject to divestiture of Alstom's gas turbine manufacturing and parts Closing targeted in Q4 2015

This Monday 2015: Deal closes Completion of the transaction follows regulatory approval in over 20 countries Changes in the deal structure (price adjustments for remedies, net cash at close & forex); the purchase price is €9.7B ($10.6B) GE also announced completed sale of rail signaling business to Alsom for $800M 29

Aftermath

Future GE-Alstom

Current recommendation HOLD Two questions for the audience Overall: $0.05 to $0.08 attribution in earning in 1. year $0.15–$0.20 in 2018 Current earnings: $.26 estimate for this quarter; overall $1.30 per year Government as a shareholder Other use of the excess funds