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GE May Lose Political Battle for Alstom to Siemens, but It's No Disaster

Stocks in this article: GEALSMYSIEGYMHVYF

NEW YORK (TheStreet) -- General Electric (GE) watchers have now become far too familiar with the soap opera that is French industrial policy decision-making. GE stock is down. 0.6% today as of noon.

When GE moved to buy the energy and transport assets of Alstom (ALSMY), it all seemed straightforward. In GE's words, the alliance would "create jobs and global energy and transport champions in France."

Not so fast.

French industrial policy is not straightforward -- especially when one of their larger industrial names has a couple of its key divisions subject to a bid by a foreign behemoth like GE. After some undignified behind-the-scenes lobbying for an alternative solution on Monday, details emerged of a complex joint bid from Siemens (SIEGY) of Germany and Mitsubishi Heavy Industries  (MHVYF) of Japan. Alstom is up 1.3% today as of noon, while Siemens and Mitsubishi are steady.

This Siemens/Mitsubishi bid is complicated, with multiple joint ventures proposed. But it also incorporates job guarantees and an explicit promise that Alstom would remain "a major French-listed group."

In a politically uncharged world, simplicity generally beats complexity. But in this situation, the most independent observers know what the likely outcome is going to be.

There is talk this morning that GE may present a slightly amended bid, but I doubt if this will change the end outcome.


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GE should not be downbeat though -- and certainly shareholders should not use any failure to win the Alstom assets as a reason to sell GE shares.

First, GE's initial bid for the Alstom assets was worth around $13.5 billion, or the equivalent of just over 5% of GE's prevailing market capitalization. (The bid was upped to $17 billion.) It was a good deal in theory, but not a company-changing one from GE's perspective. Certainly if the Siemens-Mitsubishi deal is successful both companies will have their hands full forming joint ventures and generally coming to grips with the aftermath of the corporate transaction -- potentially good news for one of their prime competitors like GE.

Second, GE have lots of other attractive initiatives within their own portfolio of assets. As I wrote in an earlier post, the key for GE's shareholders is the continued simplification being practiced by the company's management with "the initial public offering of 20% of its North American credit card division by the end of this year" standing out among other initiatives.

Simplification offers attractive knock-on aspects to shareholders via potentially more dividends and buybacks -- and few investors will say "no" to those.

In summary, if GE loses out on Alstom, it is no disaster at all.

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At the time of publication, the author held GE stock.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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