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France's New Anti-Takeover Powers Imperil GE Bid for Alstom Unit

Stocks in this article: GE

PARIS (The Deal) -- The French government has given itself new powers to block foreign investment in strategic industries including energy, in a move that could have ramifications for General Electric's (GE) 11.4 billion euro ($15.6 billion) bid for Alstom's power business.

The surprise move extends a law introduced in 2005, which had focused on defense companies, to give the state power to demand concessions or block bids for companies operating in six sectors: energy, water, transport, communications, defense and health.

"It is for the government to ensure that its legitimate objectives are fully taken into account by foreign investors, whether from within the European Union or other countries," Minister for the Economy and Industry Arnaud Montebourg said in a statement. "This new power will naturally be applied in a selective and proportionate manner."


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The timing of the new law appears ominous for GE and Alstom, which has backed the Fairfield, Conn.-based bidder's offer but also opened its books to allow Siemens (SI) to table a competing bid. The announcement comes 10 days ahead of European Parliament elections in which President Francois Hollande's Socialist Party is expected to perform poorly amid ongoing criticism of its failure to cut France's unemployment rate of over 10%. It also coincides with a debate in the U.K. about whether the government should extend its more limited powers to intervene in mergers in the wake of Pfizer's unsolicited 63.1 billlion pound ($106 billion) bid for AstraZeneca, Britain's No. 2 drugs maker.

Montebourg and Hollande have both said they are opposed to GE's cash bid for Alstom's electricity grid and generator construction units. Hollande on May 6 declared the offer "unacceptable" as it did not offer enough protection for Alstom's French employees. Montebourg has said that the deal could fatally undermine Alstom's future and that he prefers an asset swap with Siemens, which has proposed exchanging some of its rail operations for Alstom's power unit.

The government had given no indication of the power grab ahead of Thursday, when the move was announced without fanfare in the official government journal.

France last extended the state's power to intervene in foreign takeovers in 2005 under th- then Prime Minister Dominique de Villepin. That law gave the state the power to block foreign takeovers of arms manufacturers, security service providers, biological disease antidote makers and companies that could be used to launder money, such as casinos.

France's politicians periodically crank up fears surrounding foreign bids for strategic industries and large employers, typically as a way of asserting their own pro-jobs credentials. The definition of strategic industries has at times appeared tenuous. Villepin coined the phrase "economic patriotism" in 2005 when he declared yoghurt maker Danone off limits amid rumors of a potential bid from PepsiCo. Montebourg had previously declined to rule out state intervention in GE's bid for Alstom.

GE CEO Jeff Immelt has met with both Hollande and Montebourg in recent weeks to discuss his bid. Immelt said on May 6 that he was willing to discuss the terms further after Mountebourg wrote to him to say that the state would not support the offer and asked GE to consider selling its transport activities to the French company.

GE is offering $16.9 billion for Alstom's power operations, including $3.4 billion of cash on the operations books. Its offer includes commitments to increase the number of employees in France and to establish French headquarters for GE's international electrical grid, hydroelectric, wind energy and steam turbine operations.

Siemens is expected to table its offer by the end of the month.

Shares in Alstom traded Thursday at 29.04, euros down 0.28 euro, or just under 1%, on their Wednesday close. The company has a market capitalization of 8.96 billion euros.

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