GE Said to Seek Partners on Alstom Assets to Appease France

General Electric Co., seeking approval from France’s government for its $17 billion Alstom SA energy bid, is in early-stage talks with nuclear-plant maker Areva SA and other French companies about asset sales or partnerships, people familiar with the matter said.

GE is awaiting direction from the French government to see if it must sell assets to get the deal done, said the people, who asked not to be identified because details are private. GE is exploring concessions, including entering ventures in areas from nuclear power to wind-turbines to rail signaling, while it seeks clarification on what would appease the state, they said.

The overtures build on Chief Executive Officer Jeffrey Immelt’s pledge in an April 29 letter to French President Francois Hollande that GE would respect “the sovereign character” of France’s nuclear industry and consider local partners in energy and rail equipment. France last week bolstered its ability to block foreign takeovers, adding risk to GE’s pursuit of Alstom as Immelt works to return the company to its industrial roots and de-emphasize financial services.

“They will try to play ball a bit and be flexible to come up with solutions that the French government might look upon more favorably,” said Christian Mayes, an Edward Jones & Co. analyst based in Des Peres, Missouri. “But at the end of the day, GE does have some leverage in that they can walk away.”

French Contacts

French companies have been contacting GE in anticipation of the government asking for asset sales or partnerships before approving the deal, though GE would prefer not to sell anything, a person said. The U.S. company is holding talks because it’s willing to be flexible, the person said.

Also threatening to complicate GE’s effort is Siemens AG’s consideration of a possible counterbid for Alstom’s thermal, renewables and grid operations, which make and service products from gas turbines to power transmission equipment. Munich-based Siemens may decide as early as this week on an improved offer, contingent on sufficient access to Alstom’s books and management, people familiar with the matter said last week.

The offer from Fairfield, Connecticut-based GE excludes Alstom’s transport business, the maker of high-speed TGV trains.

French Economy and Industry Minister Arnaud Montebourg signed a decree May 14 giving the government the power to block some foreign takeovers, including deals in the energy industry. The rule took effect May 16.

GE fell 0.6 percent to $26.51 at 10:43 a.m. in New York. Alstom rose 2.9 percent to 28.93 euros in Paris, while Siemens slid 0.5 percent to 95.77 euros in Frankfurt.

Areva Deal

Some French officials including Hollande are demanding that GE sweeten its offer to protect jobs, while Montebourg said he prefers a Siemens proposal to swap most of its rail business for Alstom’s energy assets. That approach would create an alliance rather than GE’s proposed “absorption,” Montebourg has said. France hasn’t specifically requested that GE raise the dollar amount of its bid, said the people.

Hollande met today with Montebourg, Prime Minister Manuel Valls and Energy Minister Segolene Royal to seek better proposals for Alstom that address issues including jobs and energy independence.

State-controlled Areva, the world’s biggest reactor-fuel supplier, may be at the center of any resolution for GE. For Areva, which is merging its unprofitable offshore wind turbine business with Spain’s Gamesa Corp. Tecnologica SA to share costs, buying Alstom’s offshore wind business would eliminate a rival that was selected by Electricite de France SA for a 2 billion-euro ($2.7 billion) contract to supply three wind farms in the country.

Maintenance Worries

Areva would have to decide whether to keep developing Alstom’s 6-megawatt offshore wind turbine, which has no gearbox, in parallel with its own 5-megawatt and 8-megawatt turbines using a gearbox to increase rotation speed and yield. That would also have an impact on plants and supply chains that Areva and Alstom both have pledged to build in France to win offshore wind tenders held by the state.

The government, EDF and Areva want to ensure that GE will continue to provide adequate maintenance services for Alstom’s steam turbines used in the non-nuclear part of France’s 58 reactors, people familiar with the matter said. The three parties also want to be sure that GE won’t block export of the turbines when French nuclear companies team up to bid for tenders abroad, the people said.

Charles Hufnagel, Areva’s head of communications, and Christine Rahard-Burnat, head of communications at Alstom, declined to comment.

Immelt’s Pledges

In the letter to Hollande, Immelt pledged GE is ready to work with the state, Areva and EDF to protect the nuclear sector and preserve France’s exports. Immelt also said GE would study potential French bids for Alstom’s onshore and offshore wind business, and welcome local investors in the capital of Alstom’s unit that makes turbines for dams.

In an e-mailed response to inquiries about GE’s discussions, the company said May 15: “We continue to talk to potential French investors in offshore and hydro as outlined in Jeff Immelt’s letter to the government.”

Alstom plans to review GE’s offer by June 2, as well as consider any other proposals that are forthcoming. GE’s talks with possible partners “opens up the door to dragging this thing out,” said Mayes, the Edward Jones analyst.

Rail Venture?

The discussions with French companies include a possible rail-signaling venture with Alstom, according to the people. GE already has suggested it’s open to a partnership in that area.

Montebourg is pushing GE to sell its locomotive division to Alstom to strengthen the French company’s transport business. The two rail operations are different: GE focuses on freight locomotives and mining equipment, while Alstom’s emphasis is on passenger trains.

GE isn’t likely to offer many assets to Alstom to improve the bid, and would be especially reluctant to act until it knows whether Siemens will submit a proposal, said Daniel Holland, an analyst with Morningstar Inc. in Chicago.

“I don’t see the need for GE to bend aggressively to placate France’s desires,” he said. “GE has a lot of strategic assets that are important to its organization and they aren’t going to lightly hand over one piece just to get the Alstom deal.”

Copyright 2014 Bloomberg

Lead image: Wind turbines via Shutterstock

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