France May Face Increased Cost to Build Stake in Alstom

The French government has had its ability to buy Alstom SA shares in the open market capped by regulators, raising the potential cost of becoming an anchor investor while General Electric Co. proceeds with a $17 billion deal for the power-turbine maker.

An agreement with shareholder Bouygues SA for the state to buy as much as 20 percent of its Alstom stake, alongside an option to acquire freely traded shares, may create an unfair situation, the Autorite des Marches Financiers said in a release yesterday. It’s concerned that the government, working together with Bouygues, would end up with a combined stake of more than 30 percent without triggering a mandatory offer.

As part of a complex deal with GE, France moved to take a stake in Alstom in the most cost-effective way via the market and the Bouygues stake. Under the regulator’s ruling, the state may have to fulfill its agreement with Bouygues at a premium price rather than take the cheaper market route. Bouygues owns

29.3 percent of Alstom.

When holdings are counted together, “certain thresholds can be broken,” David Azema, head of France’s state-holding agency Agence des Participations de L’Etat, said in an interview with BFM radio. “We have pledged to do nothing that would see us break the threshold.”

France is looking to safeguard national interests as GE takes over the gas-turbine business and forms other alliances spanning nuclear and power transmission. The state’s involvement was pivotal in GE winning support for its alliance amid a counteroffer from a group including Siemens AG.

Board Members

Alstom shares traded 1.9 percent higher at 26.57 euros as of 11:01 a.m. in Paris. Bouygues, which added 0.2 percent to

30.38 euros, has pledged to sell its stake to the stake for a minimum 35 euros a share.

In ruling that the government and Bouygues are acting together, the regulator has left the state little leeway for buying shares in the open market, unless the French construction and telecommunications group first lowers its stake. Its option to buy 20 percent of Alstom from Bouygues only starts when GE’s purchase of most of the energy units is completed and Alstom has returned some of the proceeds to shareholders.

Unwanted Expense

Any additional expense would come at a time when President Francois Hollande’s government struggles to keep the economy on track. Growth will fall short of government forecasts this year and unemployment will climb as consumer spending and exports fail to accelerate, the national statistics office predicted on June 25.

Hollande is struggling to revive Europe’s second-largest economy after two years in office. The Socialist president has pledged to cut public spending by 50 billion euros over the next three years and halt tax increases in an effort to bolster confidence and investment.

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.

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