Alstom SA (ALO)’s board met today to discuss the potential sale of the bulk of the French power-plant maker to General Electric Co. (GE:US), a person familiar with the matter said, amid mounting French government concern about the deal.
An announcement may come as soon as April 28, said the person, who asked not to be identified because details are private. Industry Minister Arnaud Montebourg, who has said he’s working on alternatives to the tie-up, will meet GE executives to discuss the case, and Alstom stock trading was suspended.
GE is in talks to buy Alstom’s energy assets, which provide more than 70 percent of sales, with a complex deal structured to help minimize tax liabilities, people familiar with the transaction have said. One scenario being discussed would see Alstom’s transport business, which makes high-speed TGV trains, being spun off into a new public company -- preparations for which were under way before the GE discussions, one person said.
A separation of the rail business may help blunt political opposition in France, the people said. Montebourg has said the French government is concerned about potential job losses and decision-making power. Alstom Chief Executive Officer Patrick Kron met with French government officials yesterday, according to one of the people.
GE executives will arrive in Paris in coming days to meet with Montebourg and French Prime Minister Manuel Valls, according to an official in Montebourg’s office who declined to identify the company leaders. Seth Martin, a spokesman for Fairfield, Connecticut-based GE, declined to comment.
GE rose 0.5 percent to $26.59 at 2:44 p.m. in New York. Bouygues SA (EN), the French company that owns about 29 percent of Alstom, gained 4.2 percent to 31.61 euros in Paris. Alstom jumped as much as 18 percent yesterday after Bloomberg News reported on the talks with GE.
GE’s industrial product line includes jet engines, locomotives and turbines and other power-plant equipment. A sale would give GE control of Alstom’s technology for power transmission and power plant maintenance as Europe’s economy starts to revive. It would also be a rare example of a major French company being taken over by a U.S. rival.
“We believe Alstom’s power assets represent an excellent strategic fit for GE, offering additional synergy potential, which would justify a price in excess of the rumoured $13 billion,” Berenberg analyst William Mackie said today.
Alstom’s power assets might be worth about $14.5 billion, Mackie said. An Alstom spokeswoman declined to comment on any potential transaction. GE has the support of Bouygues, people familiar with the matter said yesterday.
Alstom executives made the initial approach and proposed a deal to GE, one of the people said.
Having engaged with GE, Alstom may attract other bidders, another person said today. The French company is the world leader in turbines for dams, while it lags GE and Siemens AG (SIE) in gas turbines. It is the third-largest maker of power transmission gear after ABB Ltd. (ABBN) and Siemens, and competes with the German company and Canada’s Bombardier Inc. (BBD/B) in the market for trains and other rail equipment.
A counterbid from German rival Siemens is unlikely as such a deal would face resistance from European regulators, a Societe Generale analyst, Gael de Bray, said today. Siemens declined to comment today on a potential counterbid.
France’s government is working on alternative “solutions and eventualities” for Alstom, Industry MinisterMontebourg told Le Monde in an interview today.
Alstom had to be rescued in a 4.4 billion-euro bailout by the French government and banks in 2004 after a series of technical flaws in a gas turbine business it had bought from ABB pushed the company close to collapse in 2003. With roots going back to 1928, Alstom built France’s power grid and the generators that produce most of the country’s electricity.
France’s government can intervene to protect companies it deems to be of national importance from being acquired. In 2005, it passed an anti-takeover decree amid speculation PepsiCo Inc. was planning a bid for Danone. The largest successful takeover of a French business by a U.S. rival in the past decade was the $7.2 billion sale of Danone’s cookies and crackers unit to Kraft Foods Inc. in 2007.
GE, which employs 11,000 people in France, generated 7.8 billion euros in local revenue in 2011, while Alstom has 18,000 employees in France, or about 20 percent of its global workforce.
GE has been shifting its focus toward its industrial units and shrinking the finance division, called GE Capital, which imperiled the company during the global financial crisis. Alstom, based in the Paris suburb of Levallois-Perret, has been selling assets to cut costs and reduce debt.
GE CEO Jeffrey Immelt would be able to tap the company’s foreign cash reserves to finance the deal, one of the people said. GE had about $89 billion in cash at the end of last year, including $57 billion held outside the U.S. Large infrastructure contracts increasingly require bidders to put up financing, putting Alstom at a disadvantage.
Alstom’s steam turbine and boiler businesses are also facing increasing competition from Indian and Chinese rivals such as Shanghai Electric Group Co., and is suffering from the slowdown in nuclear power plant construction following the 2011 accident in Fukushima, Japan.
Immelt said this month that GE is looking to make acquisitions in the range of $1 billion to $4 billion, but will spend more for exceptional targets.
Alstom in November outlined plans to sell as much as 2 billion euros in assets including a minority stake in its rail unit by the end of 2014. The company named Bank of America Corp. and Deutsche Bank AG to prepare the rail business stake sale, with an initial public offering of the business one of the options under consideration, people familiar with the matter said in January.
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