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Siemens' Alstom Proposal Struggles to Gain Traction

Stocks in this article: GE SI


Montebourg had been due to meet Immelt on Sunday but postponed the meeting until Monday. Despite wariness surrounding the sale of Alstom's energy unit to GE, the French government is not opposed to a deal so long as the U.S. buyer offers sufficient guarantees of French employment and that manufacturing operations will remain in France, according to a person familiar with the government's thinking. Alstom's energy unit has about 9,000 French employees.

Siemens' offer could still be more palatable to French politicians, who are favorably disposed to the creation a European energy and rail champions and because Siemens would not seek control of Alstom's nuclear energy division. The German company recently announced that it was pulling out of the nuclear energy sector, after the German government announced the closure of Germany's nuclear plants in the wake of Japan's Fukiushima Daiichi nuclear disaster in 2011. Siemens CEO Joe Kaeser and Chairman Gerhard Cromme are scheduled to meet Hollande and Montebourg at 6:00 p.m. on Monday.

Hollande's government has made a habit of attempting to influence corporate decision making, but has had limited success. Montebourg was an outspoken supporter of Bouygues' bid for Vivendi's mobile phone unit but was ignored by the French conglomerate, which earlier this month sold the business to Numericable Group and its backer Altice for 17 billion. In 2012 he threatened to nationalize the French assets of steel maker ArceloMittal if it shuttered smelters in eastern France, before accepting the closure.

The French state has the right to block the sale of assets that it considers to be of national interest. Montebourg has written to Immelt to confirm that the acquisition of Alstom's energy division, and in particular its nuclear operations, would require state approval.

Alstom was bailed out by the French state in 2004, when former president Nicolas Sarkozy, who was then industry minister, negotiated a 4.4 billion capital injection by the state and French lenders.

GE and Alstom have been in talks about a deal for months, it emerged on Thursday. The U.S. bidder has already conducted due diligence on the assets and has made a binding offer, sources said.

The offer may still have to be improved following the emergence of Siemens' competing bid and could go as high as $14 billion, according to a Paris-based fund manager who asked not to be named.

"A lot will depend on what [Martin] Bouygues is willing to accept," he said. "If he wants a quick deal and is happy with GE's offer then this could be over fast."

Bouygues bought the government's 21% stake in Alstom in 2006. Bouygues in February wrote down 1.4 billion of the value of its investment in Alstom, a month after Alstom cut forecasts for free cash flow and profitability because of weak orders for its power equipment.

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