GE's open offer for Alstom lacks punch

For a shareholder of Alstom India or Alstom T&D India the dilemma is either to submit their share to General Electric (GE) or hold on to it and thereby own a part of GE in India. 

 

From the shareholders point of view Alstom and Alstom T&D open offer is not compelling enough for them to submit their shares. There is hardly any premium over market price which should prompt the investors to submit their shares. 

 

At an open offer price of Rs 382.2 per share for Alstom India the price is lower than the current price of Rs 453.6 and a one month high price (which is also the 52 week high price) of Rs 481.

Similarly, for Alstom T&D the open offer price of Rs 261.25 per share is lower than the current price of Rs 273.45 and an one month high price of Rs 297 (which is also the 52 week high price).

 

 

GE has barely followed the law the of land for acquiring these shares at the volume weighted average prices as is mandated by Regulation 8(3)(e) of Sebi's Takeover Regulation. Having acquired 68.83% of promoter's shares and 75.61% of Alstom T&D's share, GE is already in control of the company and does not feel the need to go overboard in acquiring the shares as they already have controlling interest. 

 

With the share prices holding above the open offer price, market is sending the message that they would be better off holding on to the shares and would rather sell it in the secondary market rather than at a discount to GE or wait for a better offer. 

 

It makes sense for the investors to hold on to the shares of Alstom duo, given the opportunity going forward in the sector. As financials of most of the power equipment companies in India is in bad state, normal valuation parameters will not be a good benchmark to gauge the potential going forward if the next government decides to get their act in place. 

 

For the investors of Alstom the deal is not as clear as it looks since the valuation given to the Indian companies of Alstom, which are subsidiaries of the French major is not disclosed. The open offer price has been announced only on the basis of the Takeover Regulation. 

 

If GE manages to bag the required amount of share the two companies will be delisted. However, there is one more reason to hold on to Alstom groups shares as Siemens (parent company in Germany) has been given a chance by the French government (who favour the German major over the US company) and Alstom board of directors to make an offer after examining Alstom's books over the next four weeks. Siemens will naturally have to better the offer than what has been given by GE. Chances are that Siemens might announce a share swap deal if it succeeds in bagging Alstom. As for GE's role in the deal in case of such an eventuality, they will be paid 1.5% as parting fee.