GE-Alstom Set to Test Immelt After EU Wrecked Welch’s Plans
Thirteen years later, his successor Jeffrey Immelt may be defined by his ability to prevent history from repeating itself as he seeks to acquire Alstom SA. GE may announce plans to buy the French builder of power plants as soon as next week, according to people with knowledge of the proposed deal.
Lawyers say GE has learned its lesson after Welch ruffled feathers of then-EU Competition Commissioner Mario Monti and refused to budge when the regulator warned that concessions were needed to get the Honeywell deal through. The EU has also improved its methods, according to lawyers, after its reasoning was described as “off the wall” by then-U.S. Treasury Secretary Paul O’Neill.
“With hindsight, the GE-Honeywell prohibition was from a Wild West era,” said Alec Burnside, a lawyer with Cadwalader Wickersham & Taft LLP in Brussels. “The system now is much more intense and relies more on orthodox economics. I don’t see any relevance in that there was previously a prohibition. That’s prehistory and not relevant today.”
GE’s painfully gained experience shone through when Immelt, 58, successfully steered through a complex deal to buy Italian aerospace company Avio SpA in 2013. GE made concessions, including a pledge to the EU to avoid any business involving the Typhoon combat jet sold to European governments. It also agreed with the U.S. to avoid interfering with an engine component it designed for rival Pratt & Whitney, a unit of United Technologies Corp.
“This is not the GE of GE-Honeywell and its experience last year with Avio demonstrates that it is able to work with regulators,” said Paul McGeown, a lawyer at Wilson Sonsini Goodrich & Rosati in Brussels.
The Alstom deal would give the U.S. maker of jet engines and locomotives control of Alstom’s technology for power transmission and power-plant maintenance as Europe’s economy starts to revive. A purchase of Alstom would be a rare example of a major French company being taken over by a U.S. rival.
Alstom SA’s board plans to meet today to discuss the potential sale of the bulk of the French builder of power plants and transmission gear to General Electric Co., according to a person familiar with the matter.
The deal may result in a separation of Alstom’s transport business, which manufactures high-speed TGV trains, to make obtaining the approval of the French government easier, one of the people said. Alstom’s other assets represent more than 70 percent of sales.
Shares of Alstom were suspended from trading in Paris today.
Alstom would be GE’s biggest acquisition, according to data compiled by Bloomberg dating back to 1986. With a value of more than $13 billion, according to one of the people familiar with the proposed deal, it would be dwarfed only by the failed bid for Honeywell, the data show.
GE, based in Fairfield, Connecticut, has the support of Alstom shareholder Bouygues SA, said the people. The French company owns about 29 percent of Alstom.
“Alstom is not informed of any potential public tender offer for the shares of the company,” it said in an e-mailed statement yesterday. “The group constantly reviews the strategic options of its businesses.” Seth Martin, a spokesman for GE, declined to comment.
Rather than overlaps with product lines, the EU’s opposition to the Honeywell deal finally hinged on concerns that it would allow GE to bundle complementary products -- using its plane-leasing unit to dominate the market for jet engines and airplane electronics.
The same concerns will come up in the GE-Alstom case where there is a “limited” horizontal overlap, said Francesco Carloni, a lawyer at Shearman & Sterling LLP in Brussels.
The focus could be on determining whether, for example, Alstom’s hydroelectric turbines can be bundled with GE’s gas turbines, he said.
GE has already spoken to French government officials according to people familiar with the plans. GE will also probably have months of talks with the EU before the deal is formally notified for approval, said Carloni.
“If they have to give some concessions what I would expect is that in the phase before notifying” the deal “they will discuss what would be a proper solution,” he said.
That may enable GE to avoid an in-depth probe of about four months during which companies and officials haggle over acceptable concessions.
For Welch, now 78, who built GE into the biggest company by market value during a 20-year reign as CEO and postponed retirement to oversee the Honeywell purchase, the failed U.S. transaction may be remembered as his biggest miscalculation.
Selling a stake in the plane-leasing unit to an outside investor would have deprived GE of control and cut “the heart out of the strategic rationale of our deal,” Welch said at the time. He said Monti’s demands “exceeded anything I or our European advisers imagined.”
This time around, Immelt’s team will know it can’t leave anything to the imagination.
“After the GE-Honeywell decision, the standard of proof has been shifted much higher” for showing antitrust harm from so-called conglomerate effects when two apparently unrelated companies gain market power from merging their businesses, said Mario Mariniello, a research fellow at Brussels-based economic research group Bruegel.
The EU would now need “very strong concerns backed by clear-cut evidence” to show that such a deal was harmful to European consumers, he said.
To contact the editors responsible for this story: Anthony Aarons at firstname.lastname@example.org Peter Chapman