Dow Jones Business News
Alstom Denies Low-Ball Bidding, Lashes Out At Rivals
Wednesday February 18, 10:42 am ET
PARIS -(Dow Jones)- Alstom SA Wednesday denied a competitor's allegations that it engaged in low-ball bidding to win contracts and struck back with its own claims of what it called "predatory pricing."
In a statement, the Paris-based transport and power engineering group said it was responding to "allegations regarding Alstom's pricing policy made by a competitor, that we obviously deny" which were published in an analyst report Wednesday morning.
The competitor in question wasn't named in Alstom's statement but in a research note earlier Wednesday, Merrill Lynch analyst Raymond Greaves said the comments on Alstom's pricing were made Tuesday by Siemens executives during an investor presentation.
Alstom said the allegations in question are "part of a wide-ranging campaign attempting to prevent Alstom from reintroducing its (large gas turbine) GT26 in the market, as illustrated by competitors' predatory pricing on projects targeted by Alstom."
Alstom said two contracts were cited in the report, a rail project in Chile and a heavy-duty gas turbine order in Spain.
According to an audio transcript of the Siemens presentation, the company's divisional head of power generation, Klaus Voges, said the following about Alstom's win in the Spanish gas turbine order:
"We know the price, it's a lousy price and the conditions are not very favorable and at the end, we said we are not willing to accept those conditions.
"It's difficult for us to accept" that a company that gets government support and guarantees "uses this support to destroy the market price and market conditions," Voges said.
Voges also said he believes Alstom "can't afford to do such deals again in the future," according to the audio transcript.
Also during the presentation, Siemens' divisional head of transportation systems, Hans Schabert, said Alstom won a rail contract in Chile with a bid that was 23% below that of Siemens.
Merrill Lynch's Greaves, who has a sell rating on Alstom, said the Siemens executives' comments point out the risk that Alstom is winning orders at the expense of profitability.
"We would suggest the root cause of Alstom's recent difficulties directly relates not to the company's inability to win contracts, but to their seeming inability to sustainably make favorable returns on the contracts they win.
"In our view this is a structural problem in the business," Greaves said in his research note.
Responding to Siemens' allegations, Alstom said its net margin on the Chilean contract "is clearly positive and in line with Alstom Transport's profitability objectives."
Regarding the Spanish order, for two GT26 gas turbines, Alstom said it "has made no secret of the fact that it was priced aggressively."
Alstom has lost billions of euros due to technical problems with its heavy- duty gas turbines and announced the Spanish order, from Gas Natural (GAS.MC), to great fanfare in January. It was the first sale of one of its large gas turbines since 2000.
The company, rescued from near bankruptcy last summer through the intervention of the French government, has seen orders plunge over the past year as its precarious finances kept customers away.
Company Web site:
http://www.alstom.com