General Electric Co. (GE) overcame the last hurdle for the $17 billion purchase of Alstom SA (ALO)’s energy assets as shareholder Bouygues SA (EN) agreed to sell a stake to France, enabling the U.S. company to seal its biggest acquisition ever.
Bouygues will sell as much as 20 percent of Alstom to the state, the company said in a statement today, meeting a condition set by the government to back the deal. Alstom already approved the offer by its U.S. competitor.
GE Chief Executive Officer Jeffrey Immelt prevailed over a Siemens AG (SIE) counterproposal and initial French opposition that triggered a sweetened offer. GE is buying Alstom’s gas turbine operations and creating joint ventures in the steam turbine, renewable energy and electrical-transmission businesses, while the French company gets GE’s rail-signaling operations for 602 million euros ($825 million).
Based in the Paris suburb of Levallois-Perret, Alstom built France’s power grid and makes the high-speed TGV trains as well as the generators that produce most of the nation’s electricity. That history has helped cement its status as a local industrial icon, and spurred the government’s pursuit of an equity stake.
Alstom said yesterday the sale proceeds will help bolster its train, metro and signaling business; pay down debt; return cash to shareholders; and invest about 2.5 billion euros in the ventures being formed with Fairfield, Connecticut-based GE in steam turbines and renewable-energy and power-transmission gear.
Bouygues said today its deal with the state would allow the French government, or any other entity of its choice, to buy as much as 20 percent of Alstom.
Bouygues’s current stake is about 29 percent, which the French builder values at 34 euros per share. France will buy its stake “at the market price with a standard discount, on condition that this price is higher or equal to the equivalent of a theoretical adjusted price of 35 euros per share,” the company said today.
Bouygues will also allow the French government to exercise 20 percent of the voting rights, and will support the appointment of two board members to be named by the government. Economy Minister Arnaud Montebourg had said that the state would block the GE deal if France couldn’t reach an agreement on the investment.
French law permits state intervention to block acquisitions of companies deemed to be of national importance. In 2005, France passed an anti-takeover decree amid speculation PepsiCo Inc. planned to bid for dairy-products maker Danone. GE’s attempt to buy U.S. rival Honeywell International Inc., announced in 2000, collapsed when GE refused to make concessions sought by European Union officials.
For Immelt, securing France’s backing marks a victory for his lobbying campaign to soothe local political concerns. Officials called GE’s first proposal unacceptable, with Montebourg expressing a preference for a so-called European solution and strengthening the government’s ability to insert itself into acquisitions.
GE responded by revising the terms and sending senior executives led by Immelt to visit government officials. Immelt met with French President Francois Hollande and made a rare appearance last month by a U.S. CEO before the National Assembly.
GE refined its offer by proposing alliances in nuclear technology and rail, and adding safeguards to its pledge to create 1,000 local industrial jobs. The sale of GE’s rail-signaling operations, to be added to Alstom’s transport business, was one of the concessions in the updated bid.
“The state has succeeded in keeping Alstom French,” Montebourg said on June 20.
GE rose 0.2 percent to $26.97 at the close in New York on June 20. Siemens gained 0.3 percent to 100.25 euros, while Bouygues slid 1.3 percent to 32.28 euros.
Siemens sought Alstom’s energy assets to expand in Europe and keep its U.S. rival at bay. Working with Mitsubishi Heavy Industries Ltd. (7011) and later joined by Hitachi Ltd. (6501), the German company put together a counterproposal and sought to wrest away GE’s prize.
A final offer, made hours before Montebourg endorsed GE’s plan, valued Alstom’s energy assets at 14.6 billion euros.
CEO Joe Kaeser reiterated his view that Siemens had a superior bid while saying the company would accept France’s wishes. “We respect and understand the political interest of the government in the field of energy technology,” Kaeser said.