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Business News/ Companies / GE clears last French hurdle to win $17 billion Alstom deal
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GE clears last French hurdle to win $17 billion Alstom deal

The French state reached a deal to buy a 20% stake in Alstom from Bouygues, a key condition for GE's approval

GE’s concessions to appease French political leaders included the alliances in nuclear technology and rail, and safeguards to its pledge to create 1,000 local industrial jobs. Photo: BloombergPremium
GE’s concessions to appease French political leaders included the alliances in nuclear technology and rail, and safeguards to its pledge to create 1,000 local industrial jobs. Photo: Bloomberg

New York/Dallas/Paris: General Electric Co. (GE) clinched its biggest acquisition ever, the $17 billion (over 1.02 trillion) purchase of Alstom SA’s energy assets, after the resolution of the French government’s last condition for the deal.

Chief executive officer Jeffrey Immelt, approaching 13 years on the job, prevailed over a bid from Siemens AG and initial French opposition. Buying Alstom’s gas-turbine operations and creating joint ventures in the steam turbine, renewable energy and electrical-transmission businesses will help his push to return GE to its industrial roots.

“If this was hearts, Jeff shot the moon," said Nicholas Heymann, an analyst at William Blair and Co. in New York. “He got 90% of what he was shooting for, but he also made sure the business wasn’t locked and inaccessible for life between the company’s principal competitors."

The final hurdle was Sunday’s agreement by Alstom shareholder Bouygues SA to sell a 20% stake to the French state. Concerned that Alstom’s divestitures would imperil French energy independence, economy minister Arnaud Montebourg set the stock deal as a non-negotiable demand on 20 June.

Adding Alstom’s energy units will help Immelt, 58, tilt Fairfield, Connecticut-based GE back toward manufacturing after finance arm GE Capital put the parent company at risk as credit dried up during the 2008-09 financial crisis.

Immelt’s deal-making

Immelt has been making acquisitions in aviation, including a $4.3 billion deal for Avio SpA’s aerospace business in 2012, and oil and gas. In March, GE filed for an initial public offering for its North American consumer-lending unit, now called Synchrony Financial, as a first step toward exiting the business through a split-off transaction next year. That’s when GE also projects to close on the Alstom asset acquisition.

“It is consistent with them moving toward their industrial core and trying to reduce the role of finance in the business," said Peter Jankovskis, co-chief investment officer for Lisle, Illinois-based OakBrook Investments LLC, whose $3.2 billion under management included 1.28 million GE shares as of 31 March. “From that standpoint it is a positive move."

Alstom will retain its transport business, which makes the TGV high-speed trains, and also buy GE’s rail-signalling operations for €602 million (over 4,930 crore).

“The state has succeeded in keeping Alstom French," Montebourg said last week, echoing a theme in the government’s efforts to inject itself into the GE transaction. Earlier, he publicly favoured a competing offer from Munich-based Siemens as part of a so-called European solution.

Personal campaign

Immelt’s personal involvement included a rare appearance by a US CEO before France’s National Assembly and meetings with French President Francois Hollande, most recently on 20 June, as he sought to reassure local political leaders.

On Tuesday, he is tentatively set to visit some Alstom employees at a plant in Belfort, people familiar with the matter said. The plan calls for Alstom CEO Patrick Kron to join him, said one of the people, who asked not to be identified because the details are private and may still change.

The event will be a town-hall style forum for workers to ask questions, another person said. GE shot video in Belfort, where the US company and Alstom have operations, to build French public support as the deal came together, the person said. The event has been planned for several weeks as a celebration on the assumption that GE would seal the purchase, the person said.

Reputation, capital

“It’s their biggest acquisition," Mark Luschini, chief investment strategist for Janney Montgomery Scott LLC, which manages about $65 billion, said in an interview before the final approval was announced. “They’re obviously committing a lot of their reputation and capital on seeing this through."

GE’s shares have struggled during Immelt’s tenure, which began four days before the 11 September terrorist attacks in the US in 2001. The stock slid 32% on Immelt’s watch through 20 June, to $26.97, while the Standard & Poor’s 500 Index gained 81%.

Siemens today dropped 0.9% in Frankfurt trading as of 10.01am while Alstom was little changed in Paris.

Based in the Paris suburb of Levallois-Perret, Alstom built France’s power grid as well as the generators that produce most of the nation’s electricity. That history has helped cement its status as a local industrial icon, and spurred the government’s pursuit of an equity stake.

Final negotiations

Alstom’s board agreed to GE’s purchase on 21 June, even as the government and Paris-based Bouygues, a construction company, negotiated final share-sale terms. Bouygues said on Sunday that its accord with the state would let the French government, or an entity of its choice, buy as much as 20% of Alstom.

Bouygues’s current stake is about 29%, which the French builder values at €34 per share. France will buy its stake at the market price with a standard discount, on condition that this price is higher or equal to the equivalent of a theoretical adjusted price of €35 euros per share, Bouygues said. Alstom closed on 20 June at €28 in Paris.

GE’s concessions to appease French political leaders included the alliances in nuclear technology and rail, and safeguards to its pledge to create 1,000 local industrial jobs.

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Published: 22 Jun 2014, 01:03 PM IST
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