THE M&A ANALYSIS

OF GE AND ALSTOM FIN 5405 Mergers and Acquisitions

BY

Yan Meng

Chuyu Sun

Hao Zhang

Naifan Zhang

Rohit Chauhan

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Contents

1. Background ............................................................................................................................................................ 3

2. IntroductionofGeneralElectricCo. .................................................................................................................... 3

3. IntroductionofAlstom ......................................................................................................................................... 4

4. ThemotivationfortheAcquirer .......................................................................................................................... 5

Industrial Logic ......................................................................................................................................................... 5

Stakeholders Logic ................................................................................................................................................... 6

5. TheMotivationforAlstom ................................................................................................................................... 6

6. Synergies ................................................................................................................................................................ 6

Power synergy: the acquisition can expand GE’s power competitiveness. ............................................ 7

Power service synergy: broadening services capabilities .............................................................................. 7

Renewable Energy Synergy: Chain ...................................................................................................................... 7

Grid Synergy: Alstom Grid portfolio fit .............................................................................................................. 7

7. ProcessPursued .................................................................................................................................................... 7

Acquisition Proposal ............................................................................................................................................... 8

“Bidding War” with Siemens ............................................................................................................................ 8

Regulatory Approval ............................................................................................................................................... 9

The completion of the transaction .................................................................................................................... 10

8. Valuation .............................................................................................................................................................. 10

Data Mining ............................................................................................................................................................. 10

DCF Valuation ......................................................................................................................................................... 11

Other Valuation Components ............................................................................................................................. 11

9. KeyLessonsLearned ........................................................................................................................................... 12

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1. Background

AnewscametothepubliconApril24thatGeneralElectric(GE)wasintalkstoacquireAlstomfor$13billion.Hearingthenews,Alstom’sstockssoaredimmediatelyasmuchas18percent.On26April2014,theGeneralElectricsenttheBoardofDirectorsanoffer,acquiringAlstom’sthreeelectricdepartment:ThermalPower,RenewablePowerand Power of Grid for 13.5 billion dollars. However, one of General Electric’scompetitor,Siemens,didn’twanttoseetheunificationbetweenGEandAlstomandproposedtoAlstomanalternativedealtoswaptrainandenergyassetstobeattheofferfromGeneralElectriconedaylaterthenextday.ConsideringthatitsproductlinewashighlyoverlappedwithSiemen’s,which led toagreater layoffs risk,aswellasoppositionfromEuropeanregulator’s,AlstomrefusedSiemens’sproposalandstuckwithGE.Butthenthequestionwas,is13.5billionafairprice?

2. IntroductionofGeneralElectricCo.

Thomas Edison a genius inventor and business pioneer with interest in electricityrelated companies: Edison Lamp Company, a lamp manufacturer in East Newark;Edison Machine Works, a manufacturer of dynamos and large electric motors inSchenectady, New York; Bergmann& Company, amanufacturer of electric lightingfixtures,sockets,andotherelectriclightingdevices;andEdisonElectricLightCompany,the patent-holding company and the financial arm backed by J.P.Morgan and theVanderbiltfamilyforEdison'slightingexperiments.1 WiththehelpofJPMorganandAnthony Joseph Drexel, Edison fused these 4 companies together and formed acompanynamedEdisonGeneralElectricCompanyinNewYorkonApril24,1889.Attheir initial phase, the new founded company acquired Sprague Electric Railway&Motor Company. Three years later in 1892, Edison's company merged with theThomson-Houston Electric Company and formed the company which is known toeverybodynowadays,GeneralElectricCompany (GE)2. In thesameyear,GE’s stockbegantradingontheNewYorkStockExchange.Intheyear1894,Edisonsoldallofhisshareandstartedworkingasaconsultanttogeneralelectricwhilecontinuingcollectingroyaltiesonhispatents.CharlesA.coffin,whohadbeentheleadingfigureatThomas-Houstonremainedpresidentofgeneralelectricuntil1913.InthesameyearanengineernamedFrankJulianSpraguegavehisresignationandwentontoformhisowncompany,theSpragueelectricalrailwaysandmotor.HiscompanywaslaterpurchasedbyEdison.ThemergeroftwomoreAmericanbased companieswith Thomson-Houstonmade it thebiggest supplier of electricalrailwaysystemsinthecountry.In1918,GE,AT&T,andWestinghouseformedtheRadio

1 https://en.wikipedia.org/wiki/General_Electric2 http://www.ge.com/transformation/#energy

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Corporation of America (RCA) to develop radio technology which expanded GE’soperationsintoradiotechnologyarea.Theyear1943hadwitnessanotherimportantevent:GeneralElectricCapitalCorporationwasestablished. In1957,GE receivedalicense fromtheAtomicEnergyCommissiontooperateanuclearpowerplant,andwhichledtothecompletionalotofappliancemanufacturingsite,suchasAppliancePark,inLouisville,Kentucky. Theyear1998holdssignificantvalueforGE,becauseitsrevenuessurpassed$100billion.From2000and2001,GEsufferedfromafailureinacquisition:GEhadannounceda$45billiondealtotakeoverHoneywellInternationalInc.WhichwasblockedbyEuropeanCommission.GE has been following a strategy of acquiring other company, for expansion of itsbusiness.AndAlstomwasitslasttarget.

3. IntroductionofAlstom

Themergerbetween twoFrench companiesnamedThomsonHoustonelectric-theCompagniefrançaisepourl'exploitationdesprocédésThomsonHoustonandSociétéAlsaciennedeConstructionsMécaniques in the year1928 formedanewcompanycalledAlsthominBelfort.Toexpanditsoperationintransportation,Alsthom,afterjust4 years of its operations acquired constructions Electriques de France, Tarbes, amanufacturerofelectriclocomotivesaswellaselectricalandhydraulicequipment(foracomplete listofacquisitions/mergersseeAcquisitiontimelineofAlstom). In1969CGE (Compagnie Générale d'Electricité) a French global telecommunicationequipmentcompanywithheadquartersinBoulogne-Billancourt,France,emergedasthemajorshareholdersofAlsthom.Alsthomhadmadeseveralworldrecordstill1978.In1977Alsthomconstructedthefirst 1500mW generating power generator at the Paluel power station,whichwasmeanttobea1300mWstation.Andin1978itdeliveredtoSNCFitsfirstTGV,whichwentontobreakworldrailspeedrecordsin1981(240mph)andin1990(320.2mph).ItalsoreceivedanorderforthelargestgasturbineintheworldfromEDF.AstheFrenchmarketbecameinsufficient,intheyear1989toexporttheiractivitiestoEuropeCompagnieGénéraled'Electricité(CGE)andtheU.Kgeneralelectricalcompanyplc(GEC)mergedtheirpowerandtransportactivitiestoformGECAlsthom.Intheyear1998thecompanynamewaschangedtoAlstom.ThiswasalsotheyearduringwhichAlstom’sshareswerelistedontheParisstockexchange.Alstomalsosoldalotofitsbusinesses,forinstanceintheyear2000,Alstomsolditsdiesel engine business toMAN group. And in the year 2003 it also sold industrialturbinebusinesstoSiemensfor€1.1billion.

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Atthebeginningof2003camethedarkeraforAlstom.Asequenceofpoorsalesthrewthecompanyintoapitofdebt,around$5billionofdebtliabilitiescarryingapotentialtoforcethecompanyintoliquidation.TheflawsintheirturbinesbusinessesandthecollapseofcustomerRenaissanceCruiseswithadownwardspiral inmarinemarketdroppedthesharepricesofAlstomto90%,whichmadethecompanytosellacoupleof their subsidiaries (electrical transmissionanddistribution,diesel locomotiveandAlstompowerrentals).Alstomalsofollowedthestrategyofreacquiringseveralcompaniesanddivisions.TheelectricpowertransmissiondivisionofArevaSAwhichwaspreviouslysoldin2004.The company also expanded its business operations by opening new facilities inTennessee(USA),ChinaandCanada.InNovember2013,Alstomsoldsomeofitsnon-coreassetsinordertoraisecashofapproximately$1.2-$1.4billion.Alstomoperatedinthreemainbusinessareas:Powergeneration,railtransport,andtransmission. InApril2014,BloombergbrokethenewsthatGeneralElectricwas intalkstoacquireAlstom’spowerandtransmissionbusiness.

4. ThemotivationfortheAcquirer

IndustrialLogic

GEisastrongcontenderingasturbinesandwindonshore,whereasAlstomisaleaderinSteamturbines,hydroandpowerofgrid.TheintegrationofAlstomEnergywithinGEcanstrengthenGE’s futuredevelopmentprospects.First forexample inthermalenergy, Alstom and GE have complementary services in steam and gas turbinetechnology.Alstomwillbringitsspecificturnkeyprojectexpertise.AndthatexpertisecouldbringtheGEfreshthinkingandnewpower.Secondly,inwindpower,Alstomisakeyplayerintheoffshoremarket,GEintheonshoreone,sothemergercanopennewmarketsforGE.Andalso,consideringthefactthatallthreesegmentsofAlstomhavea combined sales figure of 14.8 billion Euro, and have 5200 of employees, theacquisitionwill surelyenlarge the sizeofGE. Thirdly, itwill diversify its geographicexposure. According to the 2014 10k report of GE, Europe is the second biggestgeographicrevenuesourceofGE.AndifitacquiresAlstom,itwillenlargeitsEuropeanactivities even further, which can make the company more diversified in theoperations. Fourthly, the acquisition can promote the ability of GE to fund heavyinvestmentsinnew,andthatcanmakethecompanyfinanciallymorestable.Fifthly,itcanleverageupGE’sfinancialstrengthandmakeGEmoreindependentinenergyfield.GEisalargeelectricitysupplier.Ifitcontrolsthepowergenerationpart,thenitwillbemoreflexibleandhavemorepowerofbargain.Sothattheycanbemorestableifthemarket price fluctuates. Sixthly, hydro field is the field where GE lags operations,whereasAlstompracticesworldwideleadingposition.Thecombinationofthesetwowill introduce GE into a new market. Seventhly, in services field, Alstom's large

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portfolio matches perfectly with GE's global presence. Eighthly, in electricitytransmission field, Alstom and GE are complementary both in the products andsolutionstheyofferandtheirgeographicalpresence.

StakeholdersLogic

Forshareholders,theycanexpectaraiseinstockpriceandanincreaseinthevaluewhole company. Also, they can limit their risks of execution aswell as the risk ofoperation, by diversifying their product line. For employees, they can work withdiversifiedwork forthwhichwill enhance their understanding of thewhole globalmarket.Forcustomersandsuppliers,theycanenjoylowerpriceofproductbecausethecompanycanlowerthecostofproduction.Forfinancialpartners,theycanenjoyastrongerfinancialstandingbyhavingthetwocompaniestogether.

5. TheMotivationforAlstom

Alstomapprovedtosellitstroubledthermalpowerenergyandtransmissionbusinessto GE in 2014 for €12.35bn. Out of which €700million was used to acquire GE’ssignalingactivitieswhichhadaround€400mofsales.Thistransactionresultedin1,200new rail employeesandopeningof theUS signaling freightmarket toAlstom.Themerger was a way to strengthen Alstom’s business in North America, after thistransaction the French companywould hold a good chunk of presence on all thecontinentsandwouldmakeAlstoma leader inNorthAmerican freightsignalingbyboostingitsownsignalingsaleby40%.ItwillalsoprovideAlstomwithawiderrangeofproductsandgiveitabettergeographicalcoverage.Notonlyfromtheexpansionpointofviewbutalsofromtherevenuepointofviewthemergerwaslookedtobeagreat success for the debt induced French giant, as Alstom recorded sales of €6.2billionandarecordbreakingorderbookingsof€10billionin2014/15fiscalyear.ThemergerwasnotonlyseenasashieldtoprotectthecurrentemployeesinterestinthecompanybutalsoavesseltocreatemoreemploymentfortheFrenchpeopleastheexpansionofthecompany’soperationrequiredabiggerworkforce.ThemergergaveAlstom the opportunity to buy back his own share aiming to return part of theproceedsofthetransactionwithGEonitsenergybusinessestoshareholders.Alstomfollowed the reduction mechanism, under which 91.5 million of shares whichrepresentedapproximately29.5%ofAlstom’scapitalwasrepurchasedbyAlstom.Inaddition,Alstomalso receivedcommercial support fromGE,byallowingAlstomtoassembleandserviceGElocomotivesincertainpartsoftheworld.Thedealalsoledtojointsourcingofcomponentsanddevelopmentofproductsandtechnology.Withthe acquisition of troubled businesses by GE, Alstom could proceed to become astrongerplayerintherailbusinessbydevotingallofitsfocusintherailmarket.

6. Synergies

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Powersynergy:theacquisitioncanexpandGE’spowercompetitiveness.

Firstly, it is estimated that if GE acquires Alstom it can reduce $0.5 billion themanufacturing&servicesfee,$0.6billionsourcingfee,$0.8billionSG&Aconsolidationexpense,and$0.3engineering/technologybytheyear2020whichintotalwouldsaveGECompany2.2billiondollars.Andinreturn,Alstomcangetthemoneyitneedsforoperation.Secondly,Alstomcanbringvertical integrationofkeytechnologiestoGEandcanhelpGEtorecapturegrossmarginwhereasAlstomcanshareGE’srevenueandmargingrowth,andcanexpandBOPscope,andfinallyAlstomcanmakeexecutionforcustomerssimpler.Thirdly,GEcancreate30+opportunitiesinheatrecoveryandsteamgeneratorsperyearaswellas40+opportunitiesingasturbinesgeneratorsperyear. And Alstom can get low andmedium voltage equipment. Fourthly, with theacquisition,GEcanextendpackageofferingwithAlstomHRSGswhichwilladdvaluetoGE.Also,itwillincreaseandbetterthetotalfulfillment,executionandperformanceofGE.ForbothGEandAlstom,theywillhavemoreglobalbusinesspartners,whichwillhelpitsfutureoperations. Allinall,inpowerpart,forGEandAlstom,theycanimproveproductperformance, lowerproductcost, improve thesupplyefficiencies,increaseservicemargins,stepintomoreexpandedscopeandcanmanageprojectrisk.

Powerservicesynergy:broadeningservicescapabilities

WithoutAlstom,GEinstalled15,000units’base;withAlstom,itwillhave24,000units,whichwillincreaseitsbasesof60%.AndAlstom’srelevantassetswillaccelerateGE’stotalassetsandincreaseGE’scapability,becauseAlstomisstrongerinsteamwhereithasabroadersteamportfoliotargetingsteamtails.Morespecific,thecurrentassetsunderGE’smanagementarearound90billion,however,withAlstom,thetargetassetsofGEwillreachto600billion.Andalso,withthehelpofAlstom,GEcanexpandotherOEMcapabilitybyusingAlstom’stechnologyandexpertise.Lastly,theacquisitionwilladdleverstogrowpowerservicesofGE.

RenewableEnergySynergy:Chain

With Alstom, GE can leverage wind power to Alstom’s onshore and offshorebusinesses.Also,theglobalsupplychainofGEandAlstom,whereboththecompaniespossesssynergiesforkeycommoditiesandsegmentslikesteel,blades,castingandsoon,particularlyinChina,wheretheirprimaryfocusistobringthecostdownyearbyyear.

GridSynergy:AlstomGridportfoliofit

WiththehelpofAlstom,GEcanloweritssourcing,manufacturingandtechnologycostof0.5billion.AndinSG&A,twocompanieshavefunctionalsynergieslikesimplificationandstreamlining.Also, the twocompaniescanexpand together: strengthening theelectricalbalanceofplantandexpandingAlstominNorthAmerica.

7. ProcessPursued

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AcquisitionProposal

On 24 April 2014, General Electric raised a proposal to acquire Alstom’s energybusiness,whichwouldbeoneoftheGE’slargestdealinadecade,ifsucceeded.Assoonasthenewscameout,Alstom’ssharesclosed11%higherinParis.GE’ssharesalsorose4centsclosingatNYSE.On30April2014,AlstomconfirmedanofferwhichGEsubmittedtoacquire theThermal,RenewablesandGridbusinessofAlstomfor€12.35billion,included€9.9billionenterprisevalueand€2.5billionofnetcash. GEandAlstombothbelievedthatthecombinationofenergybusinesswouldcreateamorecompetitiveentitytobetterservicecustomerneeds.Intheenergyfield,GEandAlstom are complementary to each other, with several overlapping markets.Integration would generate more than $1.2 billion (€880million) in annual costsynergies by year five and bring efficiency to supply chain, service infrastructure,commercialreachandnewproductdevelopment.3 ThisacquisitionwouldgeneratestrongoperatingassetsandwouldprovideGEwithalong-termgrowthopportunity.GEChiefExecutive Jeff Immeltbelievedthat thisacquisitionwouldhelpGEreducereliance on its finance business and tilt company’s earnings more heavily towardindustrialoperations.TheAlstomboardofdirectorsalsohadapositiveresponsetoGE’soffer;hadanunanimouslyapprovalon21June2014.

“BiddingWar”withSiemens

While GE’s acquisition was processing in full swing, in April 2014, Alstom ChiefExecutive Patrick Kron received an “olive branch” fromGerman engineering giantSiemens,showingthatSiemenswouldliketoteamupwithAlstomintheenergyandtransportfield.ThisproposalseemedtobewelcomedbyFrencheconomicministerArnaud MonteBourg, because the France government was worried that theacquisitionbyGEwouldbeathreattotheFrance’seconomicsovereigntyandwantedto intervene the transaction. However, investors and analysts suspected that thegreaterproductoverlapbetweenAlstomandSiemenswould introducegreater jobriskandpotentialissues.On16 June2014,Siemens togetherwith JapaneseconglomerateMitsubishiHeavyIndustriesLtd.launchedabidforAlstomforover€13.35billiontothwartGE’searlier€12.35billionoffer.On19June2014,GErefineditsbidbyaddingjobguaranteesandalliancesinnucleartechnologyandrail.Anditalsosolditstrain-signalingbusinesstoAlstom,inanefforttosupporttheappealofitsearlieroffer.Theacquisitionstartedturningintoabiddingwar,asSiemensandGEupgradedtheirofferingpriceto€14.6billionon20June2014.On22June2014,theAlstomboardofdirectorsapprovedGE’s 3 “GEoffers$13.5billionenterprisevaluetoacquireAlstomThermal,Renewables,andGridbusinesses”,April30,

2014, Retrieved from: http://www.genewsroom.com/ge-offers-%2413.5-billion-enterprise-value-to-acquire-

alstom-thermal-renewables-and-grid-businesses-97385

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offerthroughthecompany’sinternalE-mailstatingthatGE’soffernotonlymettheinterestsofshareholdersofAlstom,butalsoappeasedFrenchpoliticiansdemandingjobguaranteesandconcessionsonenergyindependence.4Although Siemens failed in the acquisition of Alstom’s energy business and theintervention of Siemens hadmore impact in politics than in finance, it still was asignificant improvement in the France government’s standpoint, thatmade GE toquicklyadjusttheacquisitionstrategyandmakeconcessionsintermsofprice. On 19 December 2014, Alstom’s ShareholdersMeeting authorized the sale of theEnergybusinessestoGEwithamajorityof99.2%.

RegulatoryApproval

TheEuropeanCommission startedhaving concerns about the transaction afterGEoutbid a rival offer for Alstom’s energy assets from Siemens andMitsubishi. ThetakeoverofAlstom,apearlofFranceindustry,byaUSbasedcompany,drewagreatattentiontotheEuropeanUnion’stopantitrustauthority.TheEuropeanCommissionwasworriedthatthisacquisitioncouldlimitthecompetitioninthemarketforheavy-dutygasturbinesand“mightnotonlyleadtohigherpricesbutalsoresultinlesschoiceforcustomersandlessinnovationinthesector.”5 On23February2015,theEuropeanCommission began an in-depth investigation in merging the GE & Alstom energybusinesses. The U.S. Department of Justice, Antitrust Division, requested furtherdocuments.Inviewof theblockeddealofacquiringHoneywell,GE tookapositive step in thistransactionandmadeeveryefforttoallaytheregulators’concern.JeffImmeltsaidthatGEwaswillingtoselloffintellectualpropertyandsellpartsofbusinesstosecuretheregulatoryapproval.AlthoughthedeadlinefortheEU’s investigationhadbeenextended several times, GE kept seeking the deeper concessions and convincingregulatorsthattheirinitialconcernswereinsignificant. On 8 September 2015, GE finally received the approval from the EU’s antitrustauthority, subject to the divestiture of Alstom's large and very large gas turbinemanufacturingandservicebusinesstotheItaliancompetitorAnsaldoEnergiaandajob guarantee for French employees of Alstom. Regulators believed that thisadjustmentwillbuildhealthycompetitionintheEuropeanmarket.Meanwhile,theUS

4 AlexWebbandFrancoisdeBeaupuy,“SiemensGroupBoostsAlstomEnergyOfferto$19.9Billion”, June20,

2014 Retrieved from: http://www.bloomberg.com/news/articles/2014-06-20/siemens-mitsubishi-group-lifts-

alstom-bid-as-ge-battle-heats-up5 Tom Fairless and Ted Mann, “EU to Open Probe into GE-Alstom Deal”, Feb 23, 2015, Retrieved from:

http://www.wsj.com/articles/eu-opens-probe-into-ge-alstom-deal-1424710060

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DepartmentofJusticemadeanannouncementonthesameday,that20countrieshadapprovedthedeal.GEnowhadthegreenlighttoacquireAlstom’senergyassets.

Thecompletionofthetransaction

On2November2015,GEcompletedthelong-runningacquisitionofAlstom’spowerbusiness.Thefinalvaluationwas€12.4billion,ofwhich€9.7billionwastransferredtoAlstom,leadingtorefocusonrailtransport;theremainderwasreinvestedbyAlstominGE&Alstom’s joint ventures: theGrid alliance, the Renewable alliance and thescopeoftheGlobalNuclear&FrenchSteamalliance.6

8. Valuation

ThevaluationofthistransactionisprimarilybasedontheDCFapproachtothetargetcompany,thethermalandrenewablepowerandgridunitofAlstom.Wediscountallthe free cash flows to the year of 2014.Most of the data are extracted from theBloombergTerminal.After that someof thevaluationcomponentsalsohave tobeconsideredinthevaluation,andthesecomponentsarehardlytoquantifyfromthelimiteddataandresources.

DataMining

ThedataminingforDCFvaluationischallenged,becauseAlstomisaFrenchCompanyandGEonlyactuallyacquiredthreesegmentsofAlstom.Fortunately,wefindsomekeyfinancialdatawhichcandirectlyreflectthethreesegmentsofAlstom,asshowninExhibit3.Another importanttablewefound isthegrowthrateestimationofsomefinancialdataforAlstomfrom2014to2019,asshowninExhibit4.However,thesedata are not integrated and enough for the DCF approach.We have to findmorerelevant numbers to help to do the DCF valuation. Here are some key data wecalculatedforthevaluation.

§ WACC:WefoundtheWACC2014annualreportonBloombergTerminal.Weusedthisnumberdirectlybecausewebelievethisdataismoreconvinciblethanwecalculatedaccordingtotheequationandfractionaldata.The2014annualWACCis9%asshowninExhibit5.

§ FCF: Firstly,wepredicted theOperating IncomeandDepreciation according to theestimatedgrowthrateinExhibit4,andevaluatedthecapitalexpendituresaccordingtothegrowthratethatcalculatethegeometricaveragegrowthinhistory.Secondly,thereisnoactualnumberofincrementalworkingcapitalforthermalandrenewablepowerandgridunit,soweestimateditinanotherway.InExhibit3,thereisanitemcalled capital employed, which is the sum of working capital and fixed asset. By 6 “Management Report on Consolidated Financial Statements Fiscal Year 2014/15”, Retrieved from:

http://www.alstom.com/Global/Group/Resources/Documents/Investors%20document/Financial%20results/2014

-15/MDA_FY_14-15_VA.pdf?epslanguage=en-GB

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subtractingthefixedasset,weestimatedtheworkingcapitalandthenforecastedtheincrementalworkingcapital.Thirdly,wefiguredoutthecorporatetaxrateinFranceis33.3%7.Finally,weforecastedthefuturecashflowsanddiscountedtheFCFsforthethreesegments,asshowninExhibit6.

§ TerminalValue:Forthefuturegrowthrate,wecalculatedtheaveragegrowthrateofEBITinthefollowingyearsexcludingtheoutliervalue.Theestimatedgrowthrateis2.0498%. Thenwe calculated the terminal value of each segment in terms of theequation, 𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙𝑉𝑎𝑙𝑢𝑒 = 𝐶𝐹/×(1 + 𝑔)/(𝐾8 − 𝑔)

§ Long-termDebt:Becauseofthelimiteddata,wedon’thavetheexactlong-termdebtforthermalandrenewablepowerandgridunit.Wecouldfindthelong-termdebtforthewholeAlstomgroupinitsbalancesheet,soweassumedthattheproportionoflong-termdebtisthesameinthesethreesegmentasinthewholeAlstom,asshowninExhibit7.

DCFValuation

After the complexdatamining,we finally figuredout theDCFapproach valuation,whichisthedifferencebetweenthetotalDCFandthetotallong-termdebtofThermalandRenewablePower andGridUnit. The value is €11,435.77million, as shown inExhibit8.It is lessthanthehistoricaltransactionprice€12,350.00million,probablybecausesomeothervaluationcomponentsmaycreatethepremiumofthispayment.Intermsofourvaluation,thispremiumisabout€914million.

OtherValuationComponents

Somevaluationcomponentscouldexplainwhyabuyermaypayapremiumoverthepresentmarketvalue.Thesecomponentsinclude:

§ Costsavings:AsmentionedintheSynergiespart,about2.2billiondollarscostsavingwillbebroughttoGEbytheyear2020.Ifweassumethatthesesavingswillbeeffectiveevenlyintheyearsfrom2015to2020,thediscountedsavingsintheyearof2014is€1644.83million.

§ Competitor:AsmentionedintheProcessPursuedpart,SiemensandMitsubishioncemadean€14.6billionoffer,whichwasabout€2250millionmorethantheGE’sone.Thisbiddingbroughthugepressuretolifttheprice. Weabsolutelycouldn’tsimplyaddthediscountedcostsavingsandcompetitor’spricetogether as the other valuation premium. It is very hard to quantify how muchpremiumbroughtbycost savingsandcompetitor.Westillbelieve that thepriceof€12,350.00 million is slightly low, even if half of the premium valuation wouldinfluencethefinaltransactionvaluation.Ifhalfofthepremiumvaluationisadded,thefinalvaluationwouldbeapproximately€13,340.00million,whichis€1billionhigherthanthehistoricalprice.Therefore,atleast,thisisasmallfinancialbenefitforGE.

7 FranceCorporateTaxRate,1981–2016,“TradingEconomics”;availablefrom：http://www.tradingeconomics.com/france/corporate-tax-rate

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9. KeyLessonsLearned

• The initial lesson we learned is, in every transaction, there are severalbeneficiaries.Ifacompanywantstomakethemergerortransactionssuccessful,ithastosatisfyeverybeneficiary. Inthisspecificcaseforexample,GEgainedthemostoutofthistransactionbycomplyingnotonlywiththeneedsofAlstombut also with the conditions and interests of the French government andemployees.TogettheFrenchgovernmentofftheirback,GEagreedtointroducemoreemploymentopportunitiesinFranceincludingthefulfillmentofsomeotherbasicterms.CurrentemployeesontheotherhandgainedasGEassuredthemthat itwill followapolicyofno lay-offsandbettercareerprospects.Even thecompetitors like Siemens and Ansaldo received their fair share from thistransactionastheformerattainedfamethroughparticipatinginthisbiddingwarandthelatterbenefitedbyowningthegasturbinebusinessofAlstomatafairprice. This acquisition also turned out to be advantageous for the acquire asAlstombygettingridofitstroubledbusinessescannowdirectitsfocusonrailtransport.

• Theestimatedvalueofthecompanygetsaffectedbyseveralfactors.Thefuturecash flowwillbeaffectedby theestimationof the futuregrowth rate, capitalexpenditure, incremental working capital, non-cash expense and so on. Also,other factors that will affect the value of the company are cost saving fromsynergyandthecompetitionfromalltherivals.

• Theabundanceofoverlappingbusinessescansometimesaffectthetransactionnegatively. Aswe noticed in our readings that themajor deal breaking factorbetweenAlstomandSiemenswastheunnecessaryoverlappingintheirseveralbusinesses.

• Inglobalmergers,therearenumerousformalitiestobefulfilledwhichcancausethe transaction to drag for several months. As in this particular merger theinvestigationlastedforanirrelevantlylongperiod,duetowhichthedeadlinehastobeextendedmorethanonce.

• Financialsynergiesallowcompaniestolowercostofcapitalandleverageonthecombinedfinancialstatementforbetterfinancingstructure.AsGEestimatedthatafterthemergeritcansavethecompanyatotalof$2.2billiondollarsincosts.

• Diversificationandglobalizationareconsideredaskeyfactorswhenacompanywantstobecomefinanciallystronger,andminimizetheimpactofglobalshocks.Forinstance,weobservedthatapproximately17%ofGE’srevenuecomesfromEuropesoacquiringAlstomwouldfurtherstrengthentheholdinEuropewhichwillbenefitGEincaseofmarketcrash.

• Competitive advantage is also a major factor in mergers as the combinedcompanycanhandletheintensemarketcompetitionbetterwithassesstomoreresourcesandincreasedmarketshare.

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Appendix

Exhibit1AcquisitionTimelineofGeneralElectricCo.

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Exhibit2AcquisitionTimelineofAlstom

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Exhibit3HistoricalFinancialDataofTargetCompanyfromBloomberg,2007–2014

(€000s)

ALSTOMSA(ALOFP)-BYSEGMENT

IN MILLIONS OF EUREXCEPTPERSHARE

FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 FY2013 FY2014

THERMALPOWER ASSETS 9745.00 11888.00 13640.00 13953.00 11451.00 11570.00 10835.00 9610.00LIABILITIES 8287.00 10601.00 12171.00 11749.00 9184.00 9500.00 8571.00 7145.00CAPITALEMPLOYED 1458.00 1287.00 1469.00 2204.00 2267.00 2070.00 2264.00 2465.00REVENUE 8871.00 11370.00 13054.00 13901.00 9725.00 8726.00 9179.00 OPERATINGINCOME 711.00 1007.00 1248.00 1468.00 879.00 850.00 959.00 DEPRECIATION ANDAMORTIZATION

177.00 199.00 226.00 224.00 228.00 223.00 225.00

CAPITALEXPENDITURES

-189.00 -296.00 -407.00 -428.00 -335.00 -264.00 -238.00

GRID ASSETS — — — — 5891.00 5197.00 5462.00 5072.00LIABILITIES — — — — 3809.00 3058.00 3280.00 2972.00CAPITALEMPLOYED — — — — 2082.00 2139.00 2182.00 2100.00REVENUE — — — — 3653.00 4013.00 3829.00 OPERATINGINCOME — — — — 218.00 248.00 238.00 DEPRECIATION ANDAMORTIZATION

— — — — 229.00 209.00 134.00

CAPITALEXPENDITURES

— — — — -126.00 -140.00 -113.00

RENEWABLEPOWER ASSETS — — — — 2191.00 2674.00 3106.00 3104.00LIABILITIES — — — — 1387.00 1630.00 1906.00 1641.00CAPITALEMPLOYED — — — — 804.00 1044.00 1200.00 1463.00REVENUE — — — — 1941.00 2027.00 1803.00 OPERATINGINCOME — — — — 173.00 150.00 88.00 DEPRECIATION ANDAMORTIZATION

— — — — 34.00 45.00 34.00

CAPITALEXPENDITURES

— — — — -76.00 -179.00 -166.00

16

Exhibit4FutureGrowthRatePredictionfromBloomberg,2014–2019(€000s)

ALOFPEQUITY CURRENCY

INMILLIONSOFEURFY2014Est

FY2015Est

FY2016Est

FY2017Est

FY2018Est

FY2019Est

AverageGrowth

12MONTHSENDING 03/31/14 03/31/15 03/31/16 03/31/17 03/31/18 03/31/19 REVENUE -1.5141% -68.9306% 8.9445% 6.3118% 4.9825% 4.0001% GROSSMARGIN% 2.6306% 66.6583% - -0.3425% 0.0000% 5.7650% OPERATINGPROFIT 14.9576% 62.2222% 0.0000% 0.0000% 10.1874% 4.7210% EBIT -19.9675% -70.2669% -39.4340% 3.4836% 11.9252% 12.7580% 2.0498%EBITDA -15.0050% -73.3799% -21.1608% 8.4004% 7.5021% PRE-TAXPROFIT -4.8755% -84.9039% 216.1695% 31.4873% 8.7172% NETINCOMEADJ+ -17.2608% -65.9811% 0.0000% 0.0000% 24.8687% 8.9450% NETINCOME,GAAP -13.2170% -55.5423% 0.0000% -92.2454% 38.3340% 16.3543% NETDEBT 22.0843% 10.0510% -93.4629% -37.0800% 1.2171% 0.0000% RETURNONEQUITY% -17.3793% -67.5193% 0.0000% -90.9981% 16.7713% 18.5939% RETURNONASSETS% -14.7209% -83.5840% 0.0000% -86.0262% 40.9683% 14.5310% DEPRECIATION 29.3333% -33.3333% -11.3793% -32.5263% 6.7863% 2.2644%

FREECASHFLOW 0.0000%-

293.1404%72.5693% 98.7925% 0.0000% 216.3981%

CAPEX -9.3989% -44.8073% -80.7044% -55.8560% -5.4650% -21.4119%

Exhibit5CostofCapitalofAlstom

2014A WEIGHT COST WEIGHT*COSTEQUITY 51.80% 15.00% 7.80%DEBTCOST(A-T) 48.20% 2.50% 1.20%PREFERREDEQUITY 0.00% 0.00% 0.00%WACC 9.00%

17

Exhibit6CashFlowForecasts,2014–2019(€000s)

ALSTOMSA(ALOFP) -BYSEGMENT

INMILLIONSOFEUREXCEPTPERSHARE

FY2014 FY2015 FY2016 FY2017 FY2018 FY2019TerminalValue

Growthrate

12MONTHSENDING 03/31/14 03/31/15 03/31/16 03/31/17 03/31/18 03/31/19 THERMALPOWER — — — — OPERATINGINCOME 1102.44 1788.41 1788.41 1788.41 1970.60 2063.63 DEPRECIATION ANDAMORTIZATION

291 194 171.92 116.00 123.88 126.68

CAPITALEXPENDITURES

-247.32 -257.01 -267.08 -277.54 -288.41 -299.70

OIGROWTHRATE 0.15 0.62 0.00 0.00 0.10 0.05 1.05DEP.GROWTHRATE 0.29 -0.33 -0.11 -0.33 0.07 0.02 1.04CAPITALEXPENDITURESGROWTHRATE

1.04

WORKINGCAPITAL 1504 1768.70 1.18INCREMENTALWORKINGCAPTIAL

264.70

FCF 865.16 833.01 766.63 885.16 938.72 13783.22 DCF 793.72 701.13 591.98 627.07 610.10 8958.15 GRID OPERATINGINCOME 273.60 443.84 443.84 443.84 489.05 512.14 DEPRECIATION ANDAMORTIZATION

173.31 115.54 102.39 69.09 73.77 75.45

CAPITALEXPENDITURES

-107.01 -101.34 -95.97 -90.89 -86.07 -81.51

OIGROWTHRATE — — — — — — 1.04DEP.GROWTHRATE — — — — — — 0.76CAPITALEXPENDITURESGROWTHRATE

— — — — — — 0.95

WORKINGCAPITAL 1592.80 1627.56 — — — — 1.02INCREMENTALWORKINGCAPTIAL

34.76 — — — — —

FCF 275.47 267.70 239.48 279.14 300.77 4416.25 DCF 252.73 225.31 184.92 197.75 195.48 2870.26 RENEWABLEPOWER OPERATINGINCOME 101.16 164.11 164.11 164.11 180.83 189.36 DEPRECIATION ANDAMORTIZATION

43.97 29.32 25.98 17.53 18.72 19.14

18

Exhibit6(continued)

ALSTOMSA(ALOFP) -BYSEGMENT

INMILLIONSOFEUREXCEPTPERSHARE

FY2014 FY2015 FY2016 FY2017 FY2018 FY2019TerminalValue

Growthrate

12MONTHSENDING 03/31/14 03/31/15 03/31/16 03/31/17 03/31/18 03/31/19 CAPITALEXPENDITURES

-140.33 -161.78 -156.04 -152.72 -156.84 -155.20

OIGROWTHRATE — — — — — — 0.71DEP.GROWTHRATE — — — — — — 1.00CAPITALEXPENDITURESGROWTHRATE

— — — — — — 1.48

WORKINGCAPITAL 1152.60 — — — — — 1.25INCREMENTALWORKINGCAPTIAL

189.23 — — — — —

FCF -212.24 -209.83 -214.96 -206.75 -198.98 -2921.69 DCF -194.71 -176.61 -165.99 -146.46 -129.33 -1898.90

Exhibit7Long-termDebt,2014(€000s)

LONG-TERMDEBT LIABILITIESALSTOMSA(ALOFP) 4407.00 25144.00THERMALPOWER 1252.31 7145.00GRID 520.90 2972.00RENEWABLEPOWER 287.62 1641.00TOTALSEGMENTS 2060.83

Exhibit8DCFValuation(€000s) VALUETOTALDCF 13496.6036

LTDEBT 2060.82986

DCFVALUATION 11435.77374