Wednesday, November 11, 2009

Transmission: "Feeding Frenzy: Why Giants Are Fighting for Areva’s Power Business" (ABB:GE; SI)

From Environmental Capital:

The battle shaping up over Areva’s transmission division shows just how big a part of the world’s energy future lies in a crucial, if boring, corner of the business.

To recap: General Electric, Toshiba, and Alstom are all trying to land the electricity-transmission unit of Areva, the French nuclear powerhouse. The bidders are offering between 3.5 billion and 4.2 billion euros, according to press reports.

The deal is a creature of the French state, Bloomberg notes—Paris ordered Areva to sell the unit to raise cash to bolster its bread-and-butter nuclear business. Areva bought the business in 2004 from Alstom, when Paris ordered the engineering group to offload assets to stave off bankruptcy. In five years, the value of the business has increased about four-fold.

Areva’s transmission business makes the nuts-and-bolts gear for electricity transmission and distribution, and is one of the three global giants, alongside Siemens and ABB.

That’s the main reason GE, Toshiba, and Alstom want in the game: Transmission is literally the backbone of the world’s electricity future, and Areva’s unit is one of the truly big boys. The division accounted for 38% of Areva’s sales last year.

This summer, investment bank HSBC noted that the staid-but-crucial business of making transmission gear was poised for the fastest growth in the power business over the next five years—which is why the bank listed ABB and Siemens as some of its favorite stocks....MORE