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September 5, 2009

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Toshiba's Areva bid banks on power generation for growth

JAPAN'S Toshiba Corp plans to bid for French nuclear group Areva's power transmission and distribution unit, four sources with direct knowledge of the situation said, in a deal that could top US$5 billion.

Toshiba, which runs a far-flung electronics conglomerate, is banking on power generation for growth as it reins in investment in its recession-hit computer chip business.

"If it manages to buy it for the right price, it would be a positive development," Deutsche Securities analyst Takeo Miyamoto said.

But the health of Toshiba's balance sheet is uncertain following a US$5 billion capital hike in May, and its presence as the first foreign suitor for the up-for-sale business might sit uneasily with French government efforts to promote national industrial champions.

Areva has put its transmission and distribution business on the block and is seeking to sell 15 percent of the group's capital to fuel its nuclear expansion plans. The government will play a major role in both decision for the 91 percent state-owned firm, already a global leader in nuclear technology. The political argument against a sale of T&D to Toshiba would be weakened if reported plans for an influx of Chinese money into the group prove correct. A Chinese sovereign fund is in talks to take a stake in the Areva, French daily Les Echos reported on Thursday.

A French industry ministry spokesman did not immediately return calls for comment on how the state would view a foreign buyer for Areva's T&D business.

Joint offer

First-round bidding for Areva's T&D unit - No.3 in its field after ABB and Siemens - is expected to begin in mid-September.

Declared bidders so far include French engineering groups Alstom and Schneider Electric, which are planning a joint offer.

Axa Private Equity is considering making an offer with financial or industrial partners.

French Economy Minister Christine Lagarde said this week she hoped Areva would reach a decision on the possible sale of the unit by the end of 2009.

The business brought in about 38 percent of Areva's 13.2 billion euros (US$18.8 billion) in revenue last year.

One Japanese source said the deal could be worth more than 500 billion yen (US$5.4 billion), while another said the unit could fetch as much as 700 billion yen.

Five analysts polled by Reuters put an average valuation of 3.7 billion euros on Areva T&D. Others put the value at closer to 5 billion euros.

Patrick Kron, CEO of Alstom, which plans to submit a joint bid with Schneider, declined to say on Thursday how he saw the valuation of T&D.

"It is very early in the process," he said. "We'll see where we end up as the bidding advances."


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