Four years ago, General Electric Co. (IW 500/6) made a commitment to win France’s approval to buy Alstom SA’s energy business: It would create jobs or pay a hefty fine.
The Boston-based company pledged it would add 1,000 positions in France by end-2018, failing which it would pay the French government a fine of 50,000 euros (US$57,000) for every job not generated. While the French finance ministry says GE had created 323 jobs as of end-April 2018, unions and local officials contest the number, leaving the company facing a maximum fine of 50 million euros.
The government of French President Emmanuel Macron is set to come knocking at GE’s door for its cash in the next few weeks, a French official said, asking not to be identified in line with government rules. The funds will be earmarked for fostering businesses in the areas where the jobs were supposed to be created, the official said.
GE’s problems in France exacerbate its woes at home, with the 127-year-old the company being dismantled following the ouster of two chief executive officers in quick succession and a plan to cut 12,000 jobs worldwide in its energy branch. The Alstom deal, the biggest acquisition completed by GE, was touted by then-CEO Jeffrey Immelt as a win-win for the two companies and for France. Four years on, it has left a bitter taste all around, with former GE CEO John Flannery calling the purchase “very disappointing.”
A spokesman for GE, which employs about 16,000 people in France including in renewable energy and health care, said it’s auditing the number of jobs created and would meet with the French economy ministry soon to discuss the topic. GE has said previously that its target would be difficult to achieve and that it would comply with its contractual obligations, the spokesman added.
The deal’s failure to deliver closely tracks the trends in the energy industry. The Alstom purchase was personally negotiated by Immelt and cost about $10 billion after adjusting for joint ventures and other changes to which GE agreed to win the French government’s blessing and fend off a competing bid from German rival Siemens AG.
Demand for gas turbines collapsed not long after GE completed the takeover, as clean energy became more affordable. Orders for services later crumbled as well, in part because of upgrades that reduced outages and extended turbines’ life.
Some analysts say GE overpaid for Alstom, prioritizing scale over logic and ignoring signs of a peaking market. The result was the almost $23 billion writedown GE announced last year, the majority of which is tied to the Alstom deal.
Other efforts by the company to breathe some life into its French operations also fell flat. In 2015, GE opened a research and development center in Paris with much fanfare, counting Macron among attendees. It pledged to hire 250 developers and data scientists. Now, Paris employees at the digital unit are heading for the door. Its chief, Khozema Shipchandler, left to join a startup named Twilio in October, and GE recently revamped its digital strategy.
GE’s French woes add to the turmoil at the group, which is a shadow of its original self: It has sold the bulk of its international and automotive lighting businesses, and has announced at least $10 billion in asset sales in the past 12 months. As the electric turbine market is tanking, the company is focusing on aviation, power-generation equipment and renewable energy.
By Ania Nussbaum, with assistance from Brooke Sutherland