Siemens has bought Alstom's industrial turbines business. At E1.1 billion, Alstom has secured a good price for the unit. The sale also means that its E3 billion disposal program is off to an encouraging start. Much work remains to be done, however, if the company is to survive its E5 billion debt burden.
French power and engineering group Alstom has completed the sale of its industrial turbines business to rival Siemens this week for E1.1 billion. Although the deal had been widely predicted, more of a surprise was the price paid by Siemens, more than 30% higher than many industry estimates. The higher than expected price reflects the desire of Siemens, the German conglomerate, to complete an acquisition that will fill a gap in its own product range.
Based in the UK, Sweden and Germany, Alstom's industrial turbines division makes small and medium-sized gas and steam turbines. It will broaden Siemens' present turbine product range, which currently does not go below 50MW. The challenge for the new owner will be to improve the operating margin at its new division from its present rate of 7%.
Securing E1.1 billion for the industrial turbines unit, which employs 6,500 people and generated revenues of E1.25 billion last year, is a step in the right direction for Alstom, which is struggling with a debt burden of E5 billion. Last month, the group put both the industrial turbines and the profitable energy transmission and distribution (T&D) divisions up for sale as part of a plan to raise E3 billion to pay off some of this debt.
The T&D business, like industrial turbines, was previously regarded as a core enterprise, but is now being sold in the hope of raising a further E1.5 billion. Alstom has also recently announced 3,000 redundancies at its European power turbine division as part of a wider restructuring plan.
Despite the encouraging signs from the industrial turbines sale, Alstom still has a debt mountain to overhaul if it is to survive the current financial crisis. Although further disposals and job cuts look likely, the company may soon be forced into a debt-for-equity swap just to keep afloat.
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