Bloomberg News

GE Clears Last French Hurdle to Clinch Alstom Deal

June 23, 2014

GE Buys Alstom's Gas-Turbine Operations

An employee uses a caliper micrometer to measure a section of a turbine at Alstom SA's power plant turbine refurbishment facility in Rugby, U.K. 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. Photographer: Chris Ratcliffe/Bloomberg

Jeffrey Immelt clinched General Electric Co. (GE:US)’s biggest acquisition ever, the $17 billion purchase of Alstom SA (ALO)’s energy assets, after the resolution of the French government’s last condition for the deal.

Nearing his 13th anniversary as GE’s chief executive officer, the 58-year-old Immelt prevailed over initial French opposition to a transaction with a local industrial icon. His lobbying of French officials assured GE a record prize more than a decade after European regulators thwarted predecessor Jack Welch’s bid for U.S. rival Honeywell International Inc. (HON:US)

“This was handled the way a Jeff Immelt would do it -- no theatrics, no trash talking, can we find some common ground,” said Brian Langenberg, principal and director of research at Chicago-based Langenberg & Co. “To me it fits his playing style. It was just very well done.”

With final approval yesterday from France, GE now heads toward a 2015 closing to buy Alstom’s gas-turbine operations and create joint ventures in the steam-turbine, renewable-energy and electrical-transmission businesses. Those units will further Immelt’s push to return GE to its manufacturing roots.

Related:

  • Immelt’s 100-Hour Weeks Sealed Alstom Prize
  • GE Faces Arduous Process to Complete Alstom Energy Deal

Immelt “got 90 percent 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,” said Nicholas Heymann, a William Blair & Co. analyst in New York.

Alstom’s Board

Alstom’s board accepted the GE offer on June 21 even as its largest shareholder, construction company Bouygues SA (EN), continued bargaining over a plan to sell a 20 percent stake to the French state. Economy Minister Arnaud Montebourg set the stock deal as a non-negotiable demand on June 20 on concern that Alstom’s divestitures would imperil French energy independence.

Montebourg posted a picture on Twitter of a signing ceremony after Bouygues and France reached an agreement yesterday. Flanked by a smiling Immelt and Alstom CEO Patrick Kron, Montebourg also beamed as he crossed his arms to shake hands simultaneously with each man.

“Keeping Alstom French,” as Montebourg declared last week, was a central theme in the French government’s campaign for concessions from GE even as the economy minister encouraged a so-called European solution with a Siemens AG (SIE) bid.

Immelt’s personal involvement included a rare appearance by a U.S. CEO before France’s National Assembly and meetings with President Francois Hollande as he sought to reassure political leaders of GE’s local commitment.

Sweetened Offer

GE ran French advertisements in support of the Alstom deal with the tagline: “Tomorrow is made in France,” and revised its offer last week to include the alliances in nuclear technology and rail, and safeguards to its pledge to create 1,000 local industrial jobs.

Alstom will retain its transport business, which makes the TGV high-speed trains, and also purchase GE’s rail-signaling operations for 602 million euros ($825 million).

When GE tried to buy Morris Township, New Jersey-based Honeywell for $53 billion in 2000, Welch refused to accede to demands for concessions from Mario Monti, then the European Union competition commissioner. Monti’s demands “exceeded anything I or our European advisers imagined,” Welch said at the time. The deal fizzled in 2001, the year Welch retired.

“That’s not the way to talk to Europe about doing a deal,” said Langenberg, the Chicago-based analyst. “That’s not going to do it, especially if you’re an American.”

Aerospace, Energy

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 to help return GE to an industrial focus after finance arm GE Capital put the parent company at risk when credit dried up during the 2008-09 financial crisis.

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.

Buying Alstom’s energy operations “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 March 31. “From that standpoint it is a positive move.”

GE fell 1.1 percent to $26.68 at the close in New York. Langenberg recommends the stock as buy, while Heymann rates it as market perform. Alstom fell 4.1 percent to 26.85 euros in Paris.

Stock Retreat

The shares (GE:US) have struggled during Immelt’s tenure, which began four days before the Sept. 11 terrorist attacks in 2001. GE slid 32 percent on Immelt’s watch through June 20 while the Standard & Poor’s 500 Index gained 81 percent.

Immelt’s on-the-ground role in France isn’t over. Kron said he and GE’s CEO will visit an Alstom plant tomorrow in Belfort. The Alstom factory makes steam turbines, including those used in nuclear generating stations, while GE builds gas turbines in the eastern city in a nearby facility acquired from the French company in 1999.

The event will be a town-hall style forum for workers to ask questions, a person familiar with the matter said. GE shot video in Belfort 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.

“It’s their biggest acquisition (GE:US),” 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.”

To contact the reporters on this story: Richard Clough in New York at rclough9@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net; Francois de Beaupuy in Paris at fdebeaupuy@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Simon Thiel at sthiel1@bloomberg.net Molly Schuetz


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Companies Mentioned

  • GE
    (General Electric Co)
    • $26.23 USD
    • 0.30
    • 1.16%
  • HON
    (Honeywell International Inc)
    • $94.89 USD
    • 0.24
    • 0.25%
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