Update (June 22nd, 11am GMT): Only a day after the French government gave the green light, Alstom’s board unanimously approved GE’s revised offer.
IT LOOKS like victory for General Electric (GE), then, in its long battle to buy into Alstom’s energy operations. The French government prefers the American conglomerate’s offer to that of Germany’s Siemens and Mitsubishi Heavy Industries (MHI) of Japan, said Arnaud Montebourg, the economy minister, on June 20th. Pulling a rabbit out of his hat, Mr Montebourg also announced that the government would take a 20% stake in the company. Alstom’s board will make its own views clear no later than June 23rd, but there is nothing to suggest that it will disagree with the minister. The deal is as good as done, in its broad outlines at least.
The plan bears little relation to the simple purchase and carve-out of Alstom’s energy activities which GE originally proposed to the turbines-to trains group and the government rejected. Under its amended offer GE will take over the bulk of Alstom’s gas- and coal-fired turbines business, forming three 50-50 joint ventures with Alstom’s electricity-grid, renewables and French coal and nuclear operations. The French state would hold a “golden share” in the last of these, giving it a veto and other governance privileges. Intellectual property rights relating to nuclear technology will reside in a special entity owned by the government. GE will also put its train-signalling business into Alstom’s transport division and co-operate with Alstom in America. The precise amount of cash that will change hands is not clear, but GE says its underlying valuation of Alstom’s energy assets, €12.4 billion ($17 billion), remains unchanged.
It is not so long ago that Mr Montebourg was a determined cheerleader for Siemens. He saw swapping Alstom’s energy assets for Siemens’s railway activities as a way of producing two European champions, rather than leaving a diminished Alstom to slug it out alone in transport. The offer that Siemens, in unexpected partnership with MHI, produced on June 16th and upgraded three days later was a far cry from that concept, splitting up Alstom’s energy businesses and dealing with transport matters in slower time if at all. Worst of all, Mr Montebourg said today, it risked falling foul of competition authorities in Brussels.
But Siemens served its purpose. GE came back to the table proposing a multi-faceted partnership with Alstom. The government had been concerned throughout seven weeks of negotiations to safeguard France’s strategic interests and key nuclear technology. The deal made public today would seem to meet those concerns as fully as possible.
The battle for Alstom is seen by some as a turning point for the French industry, mighty in its day but much of it struggling now for scale and scope. It is about much more than price. It is about how companies such as Alstom can best take on the challenges of globalisation. For all its problems Alstom has strong technology and respectable market positions in two sectors that are very important for the future. What sort of alliances will give it the best chance to prosper?
Europe’s big success story is Airbus, and the Franco-German co-operation at the heart of it has been much talked of in the Alstom context. Yet in the end this is not the collaboration that Siemens came up with, and the Airbus approach may be less appropriate nowadays when European firms are looking for far-flung partners in part to get access to their markets. What the German firm proposed instead was something closer to the support of Dongfeng, a Chinese manufacturer, for PSA (Peugeot). Earlier this year the Chinese manufacturer took a minority stake in the ailing French carmaker alongside the French state.
But GE has a co-operative model tucked into its own back pocket: a longstanding venture with France’s Safran. Functioning smoothly for decades, this has produced jet engines sold around the world, profiting both companies and both countries. Alstom’s board was happy to sell to the American firm in April and was dissuaded only by Mr Montebourg’s vociferous objections. Now that the deal, revamped in the light of French concerns, has the government’s imprimatur, Alstom’s cannot be long in coming.