Last updated: May 29, 2014 6:20 pm

Siemens / Alstom: fear or ambition?

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GE’s bid has put Siemens in a difficult position
Exterior view of the Siemens Forum, part of the Siemens Headquarters, on July 31, 2013 in Munich, Germany. Siemens AG, Europe's largest electronics and electrical engineering company, has appointed current Chief Finance Officer Joe Kaeser as President and CEO. Kaeser (56), who has been employed by the company for 33 years, replaces Peter Loescher who had held the post since 2007. (Photo by Joerg Koch/Getty Images)©Bloomberg

Which is stronger, fear or ambition? Hard to tell with Siemens. The German engineering group’s decision to crash Alstom’s sale of its energy business to General Electric could be a desperate grab or an act of Machiavellian cunning. Either way, it is a political, financial and reputational gamble.

Siemens will decide by June 16 whether to bid for Alstom’s energy assets. Yet Alstom was barely mentioned when the engineer unveiled a new strategy this month. Of more interest was how it would deal with eroding margins and runaway charges in its power unit.

GE’s bid put Siemens in a difficult position. Just when it could do without distractions, a frightening rival landed in its European heartland. Political pressure, on this view, is beside the point; Siemens is defending its weak flank.

But fear is never a sound basis for corporate strategy. The other possibility, that Siemens wants to build a European power champion, is more appealing. Except that an acquisition would bring high execution risk – all too familiar to shareholders. Morgan Stanley estimates that since 2001, the group has racked up close to $35bn in charges and provisions.

There is a third possibility. By intervening, Siemens is helping French politicians to squeeze pledges on jobs and investment from GE. If the US company cannot cut costs, it will be hobbled while Siemens puts its house in order.

A cunning plan, but full of potential pitfalls. The show has gone on too long to quit without making a credible bid. Anything less would rile politicians, who could make life difficult for the group.

The options now are not appealing. Should Siemens bid and succeed, the integration risks are high. If GE wins, it sets up in Siemens’ backyard. It is hard to see how Siemens comes out a winner.

Email the Lex team in confidence at lex@ft.com

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