General Electric Co. (GE:US)’s $17 billion bid for Alstom SA’s energy business is in jeopardy after France gave itself the power to block foreign takeovers in industries it deems strategic.
A decree signed late yesterday by the economy and industry minister grants the French government the right to intervene in areas that include energy. The move broadens a 2005 law focused primarily on military and defense-related operations, and builds on recent criticism of the GE deal from French officials.
The new rule, which takes effect tomorrow, strengthens France’s ability to extract concessions, including improvements in jobs guarantees. GE, facing a possible competing offer for Alstom from Siemens AG that’s favored by some French officials, may be forced to raise its bid or abandon it completely, said Steven Winoker, a Sanford C. Bernstein analyst in New York.
“The French government is going to great lengths to intervene,” said Winoker, who rates GE’s stock market perform. “This particular announcement is not a positive one from GE’s perspective. At the end of the day, I think you still will have a deal, I just don’t know that it will be with GE.”
Shares of Fairfield, Connecticut-based GE fell 0.6 percent to $26.60 in New York. Alstom fell 2.6 percent in Paris to 28.55 euros.
Steve Bolze, chief executive officer of GE’s power and water division, was in France for several days over the past week and is scheduled to meet tomorrow with French government officials.
French President Francois Hollande, dealing with record unemployment and a stagnant economy, has urged GE to improve its offer, specifically to protect jobs. Economy and Industry Minister Arnaud Montebourg said he prefers a proposal by Munich-based Siemens to swap most of its rail business for Alstom’s energy assets. He told reporters today that the Siemens bid represents an alliance and characterized GE’s offer as an “absorption” of Alstom.
“If needed, the government will be able to ask specific commitments or set conditions for investments to warrant the interests of the country,” Montebourg said in a statement about the law change. In an interview on broadcaster France 2, Montebourg said “of course” it can be used to block GE’s proposal.
According to an internal Siemens document obtained by Bloomberg, the rule “clearly aims at curbing GE’s zeal towards Alstom.”
GE is attempting to acquire the Alstom businesses that make and service turbines and other power-plant equipment, as well as transmission network products. The offer doesn’t include Alstom’s transport business, which makes the high-speed TGV trains and accounts for less than 30 percent of sales.
“The industrial project we have presented is good for Alstom, its employees and for France,” GE said in a statement today. “Our plan is to build a global energy business with four headquarters in France and to preserve and create jobs in France.”
GE said it “will continue to have open and productive discussions” with the French government.
Alstom said it remains open to competing offers until early next month, after which it will hold exclusive talks if a plan wins support. GE could pursue other acquisitions if the Alstom deal falls through, Christian Mayes, an Edwards Jones & Co. analyst based in Des Peres, Missouri, said in a note.
“We expect the drama may continue until the June 2 deadline for other companies to submit alternative bids for Alstom, and possibly beyond that depending on what government approvals are needed,” said Mayes, who rates GE’s stock a hold. “At the end of the day, though, GE does not have to buy Alstom.”
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