General Electric Co. faces a statement of objections as soon as next month cataloging the European Commission’s concerns over its 12.4 billion-euro ($13.9 billion) bid to buy most of France’s Alstom SA’s energy business, three people familiar with the matter said.
GE is poised to be told that the deal risks being blocked unless the U.S. company offers adequate remedies, said the people, who asked not to be identified because the European Union merger regulator’s review is private.
“Unconditional clearance is still possible also after the statement of objections, provided that GE sufficiently shows that there remains credible competition,” said Christian Filippitsch, a lawyer at Norton Rose Fulbright LLP in Brussels. “Alternatively, the remainder of the review period will focus on whether GE will be able to propose suitable remedies to eliminate the commission’s allegations.”
GE is walking a fine line as it tries to close the deal, attempting to accommodate the commission while sticking firm to its original merger terms. The Fairfield, Connecticut-based company is trying to avoid a repeat of its failed bid for Honeywell International Inc., which was scuttled by the European bloc’s regulators in 2001.
“We have a constructive dialog with the commission and we continue to work toward a positive outcome,” Seth Martin, a GE spokesman, said by e-mail.
GE shares were little changed at $27.08 at the end of trading in New York. Alstom fell 0.8 percent in Paris.
The timing of the statement of objections would give GE and Alstom, based in the Paris suburb of Levallois-Perret, at least two months to reach a compromise with the EU ahead of its Aug. 6 deadline to rule on the deal. Firms that get an SO can request an oral hearing to argue their case.
It’s “standard practice” in such complex cases where no concessions have been made to send a statement of objections, said Filippitsch, who’s not involved in the case. Commission representatives in Brussels declined to comment.
While the companies will seek to address EU concerns relating to the sale and servicing of heavy-duty gas turbines, GE has said it disagrees with the regulators’ initial assessment and the company has not indicated it plans to sell any assets to win clearance for the deal.
GE accounted for 51 percent of the global gas-turbine megawatt capacity ordered last year, according to data from Richmond, Virginia-based McCoy Power Reports. Siemens was second with 23 percent market share, followed by Mitsubishi Hitachi Power Systems Ltd.’s 13 percent share, while Alstom sold 7 percent and Ansaldo Energia SpA had 3 percent.
The EU has previously said the purchase may leave only Siemens AG as GE’s main rival in Europe, probably stifling innovation in the region and leading to price rises.
“The commission cannot ignore the competitive pressure exercised by Siemens, GE’s main and obviously closest competitor, whilst Alstom is only a minor player,” Filippitsch said.
Although the commission considers this to be merger cutting the European market to two main operators from three “there are already other serious market players -- such as Mitsubishi -- which at least have the potential to increase their competitive pressure post transaction,” he said.
If asset sales are necessary, a key question will be whether there is another player besides Siemens with the necessary characteristics -- expertise, financial means -- to take over the business and become a viable competitor in the future, he said.
“Overall, GE still has a good chance to get the deal cleared. It will not be the first time that a 3 to 2 merger is approved,” Filippitsch said.