Areva's High-Voltage Power Play

By MATTHEW CURTIN
World-class assets in sectors of strategic importance for the French state don't often come on the market. So the sale of the transmission-and-distribution unit of indebted, state-owned nuclear-energy group Areva is generating plenty of foreign interest.
Japan's Toshiba is considering offering around €4 billion ($5.8 billion). Siemens has put up its hand, though as one of Europe's three big players in the segment, it faces antitrust hurdles. General Electric and other Asian companies may bid too.

None should get its hopes up. T&D's strong position in Europe and Asia, where it has invested heavily in India, makes it a juicy target. But energy is a key strategic sector in France, where creating national champions is central to industrial policy. And Alstom and Schneider, two of France's biggest industrial groups, are preparing a joint bid. Assuming it is coherent and fully priced, foreign buyers may not get much of a look-in.
Any bidder will certainly have to pay more for T&D than the €930 million Areva did in 2003. Alstom sold the business under duress to avoid financial collapse for just four times operating profit. Analysts reckon the enterprise value today, after sales have risen 40% and operating margins improved, is worth roughly six times operating profit, the multiple on which Alstom shares are trading, or roughly €4 billion.
Alstom and Schneider have a good case. Each wants different parts of the business: high-voltage transmission for Alstom; medium-voltage distribution for Schneider, making it the world leader. Alstom knows the business well, which reduces integration risk and offsets the lack of synergies. The deal would help it play catch-up with GE and Siemens -- and could be a stepping stone towards its long-term ambition to create a new French champion by merging its power business with Areva's. By bidding together, Alstom and Schneider avoid endangering their credit ratings. Critically, they foresee no job losses in France.
If that wasn't enough to lower foreign bidders' hopes, AXA Private Equity, a unit of France's biggest insurer, is also mulling an offer. So Paris may have a fallback option should Alstom and Schneider not come up trumps.
Write to Matthew Curtin at matthew.curtin@dowjones.com