Background: Siemens stirred into action to trump GE gambit

Siemens's chief executive Joe Kaeser sketched the outlines of a plan that could transform Europe's energy and transport businesses in February, when he met his Alstom counterpart Patrick Kron in Paris.

Those talks came to naught and might have become a footnote in history, were it not for reports last week of General Electric’s bid to buy Alstom’s power-generation assets.

GE's offer seem to have stirred the Munich-based maker of trains, gas turbines and medical equipment into action. On Saturday Mr Kaeser penned a letter to Mr Kron proposing an asset-swap deal that Siemens hopes will trump GE's offer and mollify French political concerns over possible job cuts and the loss of its industrial heritage. The pair also spoke by phone last week.

The contest for Alstom’s power businesses is the latest battleground for the rivalry between Siemens and GE.

The two companies compete in several markets, including gas-fired power generation, wind turbines and locomotives, and executives at both are keenly aware of what the other is doing.

Letting GE greatly enlarge its European operations and acquire enhanced expertise in power transmission is an unpalatable prospect for Siemens, which hopes to profit as Europe invests heavily in renewable energy and smart grids.

To stymie his rival, Siemens's Mr Kaeser chose his words carefully. Conscious of France's desperation to find a face-saving and politically acceptable home for Alstom, he offered a separate solution for Alstom's sensitive nuclear assets, as well as promising that some of Siemens' enlarged energy business would be headquartered in France. Perhaps crucially, he also promised not to cut any French jobs for three years.

French anger
GE's bid has triggered anger among the French political establishment, which feels it should have been consulted. Siemens knows from bitter experience how difficult the French government can be. In 2004 it weighed a bid for Alstom's energy assets but was stymied by Nicolas Sarkozy, then French finance minister.

Since taking over as chief executive last summer, following the ousting of predecessor Peter Loescher, Mr Kaeser has offered only a few hints of future plans for the company.

He is due to present the results of a strategy and portfolio review in May. But he has already made clear he believes Siemens’ s future lies in electrification – from power-generation and grid connections, to the smart home. – Copyright The Financial Times Ltd 2014