General Electric's bid for Alstom's energy business will force a shakeout in the electrical engineering industry, regardless of whether it or a rival suitor succeeds in breaking up the struggling French group.
While makers of wind turbines and solar panels have already gone through crisis and consolidation, firms supplying thermal turbines and network equipment to Europe's power generation and distribution industry have yet to undergo such an upheaval.
The U.S. group's move on Alstom, which was rescued by the French government in 2004 and now needs help again, has forced German rival Siemens to prepare a counter attack even though the industry's European customers are themselves in trouble.
"GE have clearly woken a sleeping giant," said William Mackie, senior capital goods analyst at Berenberg. "It is very difficult to stand by and do nothing when a competitor like GE appears in your backyard."
The stage is therefore set for the kind of industry reshaping that typically follows a crisis when firms with deeper pockets buy up those with weaker finances such as Alstom, which makes TGV high speed trains as well as power station turbines.
For GE, a major global manufacturer of gas-fired turbines, it makes sense to make a deal with Alstom, whose strength is in steam turbines. The U.S. group would achieve a greater presence in Europe, expand into power networks and raise its industrial clout as it retreats from its finance business.
For Siemens, which has proposed exchanging part of its train business plus cash for Alstom's power arm, the justification is less clear-cut apart from foiling GE's $13 billion cash bid. For debt-laden Alstom, a deal is a matter of survival which will mean admitting it has failed to become a global energy player.
Alstom, which has a market capitalisation of $11.5 billion, is far outgunned by GE and Siemens which are worth $268 billion and $144 billion respectively. The French government is trying to stall GE's approach, pushing a deal with Siemens while looking at possible French options to save Alstom.
CUSTOMERS IN CRISIS
The engineers' European customers, power utilities, are in their worst crisis since World War II. A glut of subsidised wind and solar energy has created overcapacity, while weak economies and a drive for energy efficiency has depressed demand.
With fossil fuel generation in long-term decline and countries such as Germany pulling out of nuclear power, Siemens is being forced to consider investing more in a sector which has an uncertain future. Steam turbines use heat from coal or nuclear reactors to drive a generator while many gas-fired turbines, which resemble jet engines, are already lying idle.
European utilities have mothballed or closed more than 20 gigawatts - the equivalent of 20 nuclear plants - of gas-fired power plants and virtually stopped investing in power generation assets, emptying their suppliers' order books.
An acquisition of Alstom's power business would boost the energy share of Siemens's revenue to over a half from 30 percent now, said Rob Virdee, an analyst with Espirito Santo Investment Bank.
"For Siemens, we see this as a defensive move, which they would not have made if it were not for the GE bid," he said. "The question is to what extent Siemens wants to put so many eggs in the energy basket."
Because of the extensive overlap between Siemens and Alstom business, any deal would raise antitrust issues and could put more jobs at risk as the new company seeks efficiencies.
Citi said in a note that if Siemens were to acquire all Alstom's energy assets, it would become the world number one in power generation equipment. It would also be global leader in high-voltage power transmission products, ahead of Swiss engineering group ABB.
At present, GE has 39 percent of the world's gas turbine market, compared with 28 percent for Siemens, 16 percent for Japan's Mitsubishi Heavy Industries and just 4 percent for Alstom, SocGen estimates.
In steam turbines - a much more fragmented business with more competition and lower margins - Alstom and Siemens each have 4 percent, and GE just 3 percent. The bigger players in steam are India's Bharat Heavy Electricals (BHEL) with 18 percent, Japan's Toshiba Corp with 10 percent and China's Harbin Electric with 7 percent. A GE-Alstom or Siemens-Alstom tie-up would become the fourth-biggest player.
In grids, the cabling and transformers that help transport electricity over long distances, SocGen estimates ABB is the leading player with 19 percent market share, followed by Siemens with 16 percent, Alstom with 10 percent and GE with just 3.
Several analysts said European antitrust objections could be overcome, as the power engineering business is now much more global than a decade ago. A dominant position in any European country would need to be weighed against global competitors such as GE and Mitsubishi Heavy.
Beyond Europe, the creation of a new Western heavy engineering giant could even challenge strong local players in growing emerging markets, such as Shanghai Electric Group in China and India's BHEL.
For Alstom, a GE deal would solve its debt problem and mean fewer layoffs due to the lesser overlap of businesses than with Siemens. Sources close to Alstom's leading shareholder, French group Bouygues which has a 30 percent stake, say it is eager to take up GE's firm offer.
However, an Alstom without the power division which makes 70 percent of its sales, would be a middling transport player, unable to compete globally and ripe to become a takeover target.
Daniel Cunliffe, head of Nomura's capital goods team in London, says the most likely outcome is a Siemens-Alstom deal.
A deal with Siemens would make Alstom the number one transport player in Europe, the world's biggest transport market, with 10-12 billion euros in revenue and able to take on Chinese transport giants such as China Southern Rail and CNR Corp.
If GE wins the day, however, Alstom will end up with six to seven billion euros in cash and in the unenviable position of a small to mid-sized engineer. With revenues of four to five billion, it would be at best a top five player in the field of transport with huge competition from China.
"They would have a small train asset, worth less than their cash," Cunliffe said.