Arbitrage i Alstom?

Alstom Equity story (updated 19th dec)

Alstom, a french industry giant, finally recieved approval by the french government for a complex joint venture/merger with General Electric. The deal was approved by Alstom shareholders (19/12/2014) and involves a number of transactions. As we expected the shareholders followed the boards recommendation with an overwhelming majority and the deal is to be finalized in q2 2015. The transaction involves several big cash elements. The company´s market cap is 8,65 Bbn €, but the deal includes that GE pays 12,35 bn € to Alstom in cash, so there is considerable value to be unlocked which the market is yet to realize or acknowledge. This partly due to the effective political interference by then french minister, Arnould Mountebourg. The deals results in 3 Joint ventures in Thermal Power, Renewable Power and Grid. Following the transaction, to be voted on by shareholders 19th december, Alstom will keep 100% ownership of the transport division and buy GE´s signalling division.

How will the proceeds be used?

Skærmbillede 2015-01-30 11.34.29On nov. 5th the company revealed what areas could be effected by the proceeds. Even when the company invest heavily in the 3 JV´s (2,6 bn €), pays down their pension obligation and prematurely reduces its debt which matures within the next 2-3 years there is ample cash to be paid out in the first half of 2015. The 19th december, on the EGM, management will lift the veil on just how much it feels is prudent to pay out to shareholders. We expect a huge dividend payment of at least 10 €. and could go as high as 15-19 € per share. We draw comfort from the fact that the company announced that it wants to deleverage the debt, not erradicate it. (13. Nov: The dividend became a share buy-back with a fixed price. We adjust up our target price and the probability)

Payout of dividend will reveal value

Although there still is considerable lack of transparency we believe the EGM will reveal the value of the underlying Joint Ventures and the size of the dividend will provide a trigger for the stock. To add even more flavour to the somewhat bizarre story the french government has an option from Bouygues, a 29% shareholder, to buy its stake within 20 month for 35 €. We believe that fair value is at least 33€ (34€) and give it a 65% probabilty to be unlocked in the next 180 days.