GE Mulls French Demand for 20% Alstom Stake as Siemens Bows Out

Jun 20, 2014 7:00 pm ET

June 21 (Bloomberg) -- General Electric Co. must decide whether to accept France’s terms to complete the acquisition of Alstom SA’s energy assets, the U.S. company’s biggest deal ever, after winning the government’s support.

France will back GE’s offer on the condition that the state acquire a 20 percent stake in Alstom, Economy Minister Arnaud Montebourg said yesterday, turning aside a bid by Siemens AG. GE declined to comment while reviewing the demands in a 50-page document sent to Chief Executive Officer Jeffrey Immelt.

“It really comes down to ironing out those final details between GE and the French government and making sure they see eye to eye on the final points,” said Christian Mayes, an Edward Jones & Co. analyst based in Des Peres, Missouri, who rates GE as hold. “It looks like it’s moving forward.”

Montebourg’s announcement clears a path for GE to purchase Alstom’s gas turbine operations and create joint ventures in the steam turbine, renewable energy and electrical transmission businesses. Alstom, based in the Paris suburb of Levallois- Perret, is an industrial icon after building France’s power grid and the generators producing most of the nation’s electricity.

Alstom’s board met late yesterday to discuss the offer after Montebourg disclosed the government’s insistence on taking a stake following meetings by French President Francois Hollande with Immelt and Siemens CEO Joe Kaeser.

“It’s a prerequisite that France takes 20 percent of the capital,” Montebourg said in Paris. “If that’s not realized, GE’s bid will be blocked.”

Updated Offer

GE refined its offer this week by adding alliances in nuclear technology and rail, which will pare the cash element of the original plan valuing Alstom’s energy operations at $17 billion. Fairfield, Connecticut-based GE hasn’t given a new figure while saying it still offered 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 late yesterday.

GE rose 0.2 percent to $26.97 at the close in New York yesterday, while Alstom gained 1.1 percent to 28 euros in Paris. Siemens gained 0.3 percent to 100.25 euros.

Rail, Bouygues

Alstom’s transport business makes the TGV high-speed trains, which the French company will keep as it buys GE’s rail- signaling operations. The government’s 20 percent Alstom stake 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 block 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, collapsed 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 proposal unacceptable, with Montebourg expressing a preference for a so-called European solution.

Takeover Acquisition

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 yesterday: “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 before Montebourg spoke, 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.

--With assistance from Aaron Kirchfeld in London.