GE Wins French Support on Alstom With State Seeking 20%Francois de Beaupuy, Richard Clough and Alex Webb
General Electric Co. won France’s support to buy Alstom SA’s energy assets, beating Siemens AG and putting Chief Executive Officer Jeffrey Immelt a step closer to the company’s largest acquisition ever.
Siemens said it respects today’s decision by French leaders, who will back GE’s bid on condition that the government acquire a 20 percent stake in Alstom. GE declined to comment while it reviews the demands set forth today by Economy Minister Arnaud Montebourg, said Gary Sheffer, a company spokesman.
“GE is probably going to be flexible and try to get the deal done,” said Christian Mayes, an Edward Jones & Co. analyst based in Des Peres, Missouri, who rates GE as hold. “It sounds like the government is behind them on this and that was the key sticking point.”
The announcements clear a path for GE to acquire Alstom’s gas turbine operations and create joint ventures in the steam turbine, renewable energy and electrical grid businesses. Alstom’s board met today to discuss the offer, and GE still has to respond to the French government’s requirement, which Montebourg disclosed after Immelt and Siemens CEO Joe Kaeser met with French President Francois Hollande.
“It’s a prerequisite that France takes 20 percent of the capital,” Montebourg said in Paris today. “If that’s not realized, GE’s bid will be blocked.”
GE refined its offer yesterday by adding alliances in nuclear technology and rail. The cash element of its original plan, which valued Alstom’s energy operations at $17 billion, will be pared, GE said, without giving a figure. Fairfield, Connecticut-based GE said today it’s still offering more cash than did Siemens and partner Mitsubishi Heavy Industries Ltd.
Kaeser reiterated his view that the Munich-based company had a superior bid while saying Siemens will acquiesce to France’s wishes. “We respect and understand the political interest of the government in the field of energy technology,” Kaeser said in a statement.
Mitsubishi “acknowledges and regrets” France’s decision, according to an e-mailed statement from the Tokyo-based company. Alstom had no comment after its board met late today.
GE rose 0.2 percent to $26.97 at the close in New York, while Alstom gained 1.1 percent to 28 euros in Paris. Siemens gained 0.3 percent to 100.25 euros.
Alstom, based in the Paris suburb of Levallois-Perret, built France’s power grid and the generators that produce most of the nation’s electricity. The transport business makes the TGV high-speed trains, which Alstom will keep as it buys GE’s rail-signaling operations.
The French government’s 20 percent stake in Alstom would be acquired from shareholder Bouygues SA at market prices, Montebourg said. A spokesman for Paris-based Bouygues didn’t immediately comment on the proposal.
French law permits government intervention to bar 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, fell apart when GE refused to make concessions sought by European Union officials.
Securing France’s backing marks a victory for Immelt’s personal lobbying campaign to soothe concern that the country was losing an industrial icon. Officials called GE’s initial $17 billion proposal unacceptable, with Montebourg expressing a preference for a so-called European solution.
Montebourg, an admirer of Louis XIV’s dirigiste finance minister Jean-Baptiste Colbert, signed a decree in May giving authorities the power to block foreign takeovers in the energy industry, just weeks after GE made its binding offer to Alstom on April 30.
GE responded with the revised offer and meetings by Immelt with Hollande and a rare appearance last month by a U.S. CEO before the National Assembly. Montebourg said today: “The state has succeeded in keeping Alstom French.”
Siemens sought the energy assets targeted by GE as the German company sought to expand in Europe and keep its U.S. rival at bay. Siemens and partner Mitsubishi improved their offer for Alstom earlier today, valuing the French company’s energy assets at 14.6 billion euros ($19.8 billion).
“From an Alstom shareholder’s perspective, the GE proposal appears marginally more attractive,” said Andrew Carter, an analyst at RBC Capital Markets. GE’s bid would reduce Alstom’s exposure to troubled steam and nuclear businesses more than under the Siemens proposal, he said.
Under GE’s revised plan, Alstom will keep a stake in joint ventures being formed in power grids, steam turbines and renewable energy products. GE and Alstom also proposed to create a nuclear-energy partnership to ease French concern that the sovereignty of the country’s nuclear power industry would be imperiled. GE will buy 100 percent of Alstom’s gas turbine business and related servicing operations.
Under the government proposal, Alstom would pay 1 billion euros for GE’s rail-signaling operations, Montebourg said today. The terms of France’s requests were detailed in a 50-page document sent to Immelt, Montebourg said.
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