The Squabble over France's Areva
A French government plan to sell off part of state-owned nuclear power giant Areva (ARVCF.PK) has touched off a political brawl pitting some of the country's biggest companies against each other, and drawing General Electric (GE) and Toshiba Corp. into the fray as well. With orders for nuclear plant construction booming worldwide, France wants to sell Areva's lucrative electricity transmission and distribution (T&D) unit to raise money for expansion of its nuclear business. Both GE and Toshiba have bid on the T&D unit, which is expected to fetch about $6 billion. But the government, which has said it will make a decision in the next few weeks, has been leaning toward a joint bid by two big French companies, engineering group Alstom (ALSO.PA) and Schneider Electric (SCHN.PA). They want to split the business between them, with high-voltage transmission going to Alstom and low-voltage distribution to Schneider. Areva hates that idea. On Nov. 25 the executive committee of Areva's T& D division took the highly unusual step of publishing an open letter in French business daily Les Echos, warning that a breakup of the division would cripple it, giving an advantage to foreign rivals Siemens (SI) and ABB (ABB). Referring to the bids by GE and Toshiba, each of which would combine Areva's T&D unit with its own similar business, the committee wrote: "Wouldn't it better serve our country to accept an alternative offer from a foreign buyer that would guarantee the integrity of a French industrial champion?" Fighting the BreakupAn Areva spokeswoman said that while the letter expressed "the point of view of the entire [T&D] executive committee," the company's top management had no comment on the controversy. Areva Chief Executive Anne Lauvergeon, though, has made no secret of her opposition to the breakup plan. French labor unions also have weighed in against the proposal, saying it could endanger the jobs of the unit's 31,000 employees. GE Chief Executive Jeff Immelt has already made a personal sales pitch to French President Nicolas Sarkozy, in an Oct. 26 tête-à-tête at the Elysée Palace in Paris. The newspaper Le Figaro reported on Nov. 25 that Immelt had requested a second meeting with Sarkozy this week. BusinessWeek was not immediately able to confirm that report. Immelt has other reasons to be in Paris this week: French media and telecoms group Vivendi (VIV.PA) appears close to a decision on selling its 20% stake in NBC Universal, which is majority-owned by GE. That would clear the way for GE to buy the stake and then follow through on its plan to sell 51% of NBC Universal to Comcast (CMCSA). GE's bid for the Areva T&D unit carries political risks, though. If GE wins, it could dash the ambitions of Schneider Electric to become a global champion in the business of low-voltage electric systems. Schneider's CEO, Jean-Paul Tricoire, has shifted the company's focus toward this business, including "smart grids" and other technologies to manage energy consumption. But if GE could add Areva's low-voltage business to its existing holdings, the U.S. company would vault ahead of Schneider, now the global No. 3 in the sector. Profit GeneratorComplicating the politics further, the new head of national electric utility Electricité de France (EDF.PA), Henri Proglio, has been taking potshots at Areva. Proglio, the former CEO of utility Veolia Environnement (VE) and a close ally of Sarkozy's, has said recently that Areva should be restructured and suggested that EDF, its biggest customer, should take a stake in the company. But the government appears to take a dim view of those ideas: Finance Minister Christine Lagarde, asked about Proglio's remarks, said in a Nov. 20 radio interview that the new EDF chief already had "a lot on his plate" and should concentrate his efforts on his own company. It's no secret why so many companies are circling Areva's T&D business. Although it accounted for only 38% of the company's $19.7 billion in sales last year, the division produced half of Areva's $1.7 billion operating profit. Yet auctioning off this jewel is starting to look like a no-win situation for the government, which is sure to anger one or more big French companies no matter what it decides. That's partly the government's fault, because it forged ahead with the planned sale without considering all the implications, says Per Lakender, the head of utilities research at UBS (UBS) in London. "The whole process was very poorly planned," he says. Lakender predicts that government officials may now delay a decision while they try to sort out the mess. "There is a big chance that this is not going to be settled soon," he says.