GE Savoir Faire Gives Immelt Chance to Win France’s Alstom

France may not always be the most hospitable place to do deals. General Electric Co.’s Jeffrey Immelt may find that this time it’s different.

GE is in talks to buy Alstom SA, the builder of steam turbines for nuclear plants, people with knowledge of the matter said, in what would be the U.S. company’s biggest acquisition. The deal would exclude Alstom’s transport unit, the builder of the iconic Train a Grande Vitesse, or super-fast trains, to make it more palatable politically, one of the people said.

While France may not seek to block a potential GE bid, it could make demands on preserving the company it saved from bankruptcy a decade ago. GE is counting on its presence in France with 11,000 employees to win over the government of President Francois Hollande, which is struggling with record-high joblessness.

“The biggest hurdle to the deal going through is going to be political resistance,” William Mackie, an analyst at Berenberg Bank in London, said in a Bloomberg Television interview. “But GE is a very political animal, both domestically and from an international point of view. I’m sure they’ve done enough cross-checking to feel sure that this discussion could advance.”

GE may have a better chance than others in winning over French officials. The European headquarters for GE Energy, GE Real Estate, GE Power Conversion, GE Aviation, GE Healthcare and GE Transportation are in France. The Fairfield, Conn.-based company has a venture with Safran SA to build aircraft engines.

Its French operations are headed by Clara Gaymard, 54, the former head of the government agency promoting foreign investment in France.

Government Conditions

The state is likely to put in place stringent conditions on the terms of any transaction, especially in terms of jobs.

“The government is paying close attention to jobs, to technologies and to the location of headquarters,” Prime Minister Manuel Valls said yesterday.

Industry Minister Arnaud Montebourg says the government is working on options other than a GE takeover of Alstom, Le Monde reported. The minister and Valls will “shortly meet with the chairman of General Electric” to discuss their concerns, the newspaper said. His office didn’t immediately return calls.

Alstom, based on the outskirts of Paris, employs about 18,000 people in France, has 21 engineering and production sites in the country, and had revenue in 2013 of just over 20 billion euros ($27.6 billion).

French Presence

“The issue will probably become highly politicized,” Antonio Barroso, a London-based analyst at Teneo Intelligence said. “Alstom is one of France’s flagship firms and I would be surprised if the government did not demand certain conditions such as guarantees that French jobs will be preserved.”

Alstom, which rose as much as 18 percent yesterday, was suspended today at the request of the French markets regulator. Alstom closed 11 percent higher at 27 euros yesterday.

GE had 7.8 billion euros in revenue in France in 2011, including 5.6 billion euros in manufacturing of medium-sized gas turbines, oil and gas equipment, and medical equipment, according to its web site.

GE is seen as a good corporate citizen in France, Mackie said, adding that might help it make its case.

Companies don’t always have it easy with corporate decisions in France. Last year, Yahoo! Inc. failed to invest in YouTube’s smaller rival DailyMotion, a unit of phone operator Orange SA, in which the state is the single-biggest shareholder with a 27 percent stake. Orange had sought to sell a majority stake in DailyMotion to expand the brand and finance research.

Protected Companies

Montebourg summoned executives of the two companies to the finance ministry, giving them a dressing down and accusing the Orange executive of selling one of France’s “crown jewels,” said a person with direct knowledge of the discussion. The deal was abandoned.

The French government in 2005 passed an anti-takeover decree driven by speculation that PepsiCo. Inc was planning a bid for yogurt maker Danone.

The list of industries protected in the 2005 law includes weapons and secret defense contracts, corporate and computer security, monitoring and encryption technology, vaccines against biological weapons and technologies with both military and civilian uses.

The government has said the list conforms to EU exemptions for national security from free-market rules.

Montebourg Bluster

Companies have also found corporate actions such as firing and plant closures difficult.

In October, Hollande’s government threatened to block job cuts at Alcatel-Lucent SA.

In November, 2012, Montebourg threatened to nationalize a part of steel plant owned by ArcelorMittal rather than let Chief Executive Officer Lakshmi Mittal dismantle it.

For all the tirades, however, the government has been limited in what it can do to block private companies’ plans.

This month, Vivendi SA went ahead with a decision to sell its SFR unit, France’s second-largest mobile-phone company, to Altice, controlled by Geneva-based French-Israeli billionaire Patrick Drahi. That was even after the government made clear its preference for a competing bid from Bouygues SA.

Also this month, France’s Lafarge SA and Switzerland’s Holcim Ltd.’s announced a plan to merge and create a global cement giant with more than $40 billion in revenue.

The most the government could do was to promise to be “vigilant” in term of jobs and where the combined company would be based.

Crown Jewel

Even before the Lafarge-Holcim deal, France was Europe’s most-active country for takeovers this year with more than $60 billion in deals, according to data compiled by Bloomberg. That’s more than double the volume in the U.K. or Germany.

GE’s bid for Alstom would be the latest in such deals.

Alstom has long been a crown jewel for France. It had to be bailed out by the French government and banks in 2004 after technical flaws in the gas turbine business pushed the manufacturer close to collapse in 2003.

Former President Nicolas Sarkozy, who was then finance minister, often boasted about the rescue, rather than sell off parts of the company that were being eyed by German rival Siemens AG. As part of the bailout, the French government bought a 21 percent stake in Alstom for 720 million euros, and sold it back to Alstom for 2 billion euros in 2006.

“Political winds have changed,” Mackie said of GE’s bid for Alstom’s business. Deals like Lafarge and SFR may have “opened the door perhaps to more political leeway for a transaction like this and when you consider the economic benefits,” he said.

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