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Industryweek 6845 Hollande

France Tells GE and Siemens: Alstom Proposals Still Not Good Enough

June 17, 2014
The French government has given itself the power to veto a deal on the grounds it does not want Alstom, an innovator and big employer, to sell the bulk of its business to a foreign firm without the state having a say.

PARIS - The French government raised the stakes in the battle for engineering group Alstom on Tuesday, telling rival suitors General Electric (IW 500/6) and Siemens (IW 1000/35) to come up with better offers.

President Francois Hollande's government has given itself the power to veto a deal on the grounds it does not want Alstom, an innovator and big employer, to sell the bulk of its business to a foreign firm without the state having a say.

In a crunch week for Alstom as the deadline for GE's bid approaches on June 23, Germany's Siemens presented a joint proposal with Japan's Mitsubishi Heavy Industries (IW 1000/140) to Hollande earlier on Tuesday that it said valued Alstom's power arm at 14.2 billion euros (US $19.3 billion), above GE's existing 12.4 billion offer.

But Hollande's government responded by saying it expected better offers from both companies.

"The talks between the state and the different companies are going to continue this week," a source in Hollande's office said after the meeting with Siemens Chief Executive Joe Kaeser and Mitsubishi Heavy Industries CEO Shunichi Miyanaga.

"The offers must be improved," the source said.

Siemens' Kaeser, outlining his offer with MHI to reporters across town in Paris, said he saw no reason to discuss improving an offer which was already the better one on the table.

"Why would a superior offer be improved if it is superior already? There is no reason for us to discuss that question at this time," he told a joint news conference with MHI's Miyanaga.

Siemens offered to buy Alstom's gas turbines business for 3.9 billion euros in cash, and MHI to buy minority stakes in various Alstom power activities, to be held in three separate joint ventures, for 3.1 billion euros in cash.

MHI would inject 3.1 billion euros in cash into Alstom and offer to take a stake of up to 10% in the French firm from 29% shareholder Bouygues.

GE - which is ramping up its charm offensive in the French press with ads saying its proposed "alliance" with Alstom would create a global energy leader - said it had made progress in discussions with the government on its offer for all of Alstom's energy arm, which includes its thermal power, renewable power and grid businesses.

For its part, Alstom has said only that it would examine the Siemens-MHI proposal in the coming days.

'Proud French Icon'

Hollande's Socialist government has tried to negotiate better offers to preserve Alstom as a player in transport and energy, seeing both as vital national industries when unemployment is stuck above 10% and voters are increasingly turning towards the far-right.

It passed a decree last month giving itself new powers to block foreign takeovers in sectors deemed "strategic."

"We are keeping a proud French icon strong and making it even stronger," Kaeser said of Alstom, which makes TGV high-speed trains and supplies power equipment used in around 40% of nuclear plants worldwide.

"We are not going to dismantle this proud company," he said, adding that Siemens was also ready to enter into talks with Alstom to strengthen both companies' transport businesses.

The French government's call for better offers comes as it battles with U.S. authorities to reduce penalties on France's biggest lender BNP Paribas for breaching U.S. sanctions against Iran and other countries between 2002 and 2009. However, French officials have not drawn a link between the two issues, in public at least.

On Tuesday, some analysts said the Siemens-MHI offer could be more attractive for Alstom in valuation terms and noted it would leave the company controlling most of its existing power arm. Yet others argued the offer would result in a more complex outcome that made a priority of political concerns.

"GE's offer has the merit of being clear and coherent, something the Alstom board should appreciate," Aurel BGC strategist Tangi Le Liboux wrote in a note to clients.

"But the MHI-Siemens offer is designed to win over the government," he added.

Mitsubishi's Miyanaga told the joint news briefing with Kaeser that it would create about 1,000 new jobs in France with joint research and development, marketing and manufacturing cooperation, and efforts to boost local vocational skills.

Kaeser said he had committed during the morning's meeting with French officials to create 1,000 apprentice training jobs in France and guaranteed that existing Alstom worker benefits would not be damaged by the tie-up.  

(Writing by Mark John; Editing by Sophie Walker)
Copyright Reuters, 2014

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