GE’s Deal With Alstom Said Caught in France-Bouygues Dispute

Jun 21, 2014 1:43 pm ET

(Updates with report on progress in second paragraph.)

June 21 (Bloomberg) -- General Electric Co.’s purchase of Alstom SA’s energy assets, already cleared by France, is being held up by a dispute between the government and shareholder Bouygues SA, people familiar with the matter said.

France said yesterday it will back GE’s bid, turning aside an offer by Siemens AG, provided that the state buy a 20 percent stake in Alstom from Bouygues. Citing a person it didn’t identify, AFP reported that the government and Paris-based Bouygues had agreed on a price for the Alstom shares, clearing the way for an announcement later.

GE has accepted a deal with Alstom and France, and is waiting for the government and Bouygues to resolve their issues, three people told Bloomberg News while asking not to be identified because the details are private. Spokesmen for Bouygues and the government declined to comment on the talks.

An accord would clear a path for GE’s biggest deal ever, letting Chief Executive Officer Jeffrey Immelt acquire Alstom’s gas turbine operations and create joint ventures in the steam turbine, renewable energy and electric-transmission businesses. Alstom is an industrial icon after building France’s power grid and the generators producing most of the nation’s electricity.

Bouygues owns a 29 percent Alstom stake that the French builder values at 34 euros per share, 6 euros higher than the closing price yesterday. The French government’s planned 20 percent stake in Alstom would be bought at market prices, Economy Minister Arnaud Montebourg said.

‘A Prerequisite’

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

Negotiations between the government and Bouygues are ongoing, French President Francois Hollande told journalists in Paris earlier today. “I think we’ll see progress on this by the end of the day,” he said.

GE has declined to comment on whether it will accept France’s terms to complete the deal.

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

Government Talks

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.

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. Kaeser yesterday reiterated his view that the Munich-based company had a superior bid while saying Siemens will acquiesce to France’s wishes. Alstom had no comment.

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.

Alstom’s transport business makes the TGV high-speed trains, which the French company will keep as it buys GE’s rail- signaling operations.

Personal Lobbying

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.

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.”

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 and Alex Webb in Munich.