- The French government has formally and publicly outlined its opposition to General Electric's planned takeover of most of Alstom.
- France's protectionist agenda means any potential synergies that are typically seen with mergers won't be possible.
- Siemens is offering a rival bid more fitting for the French government and I hope Siemens succeeds.
Last week I detailed my views on General Electric's (NYSE:GE) planned acquisition of most of Alstom (OTCPK:ALSMY). As a recap, I am completely against GE getting involved in a business that was bailed out less than a decade ago due to chronic unprofitability and where any acquirer must crawl on its hands and knees and beg the French government to get out of the way. Neither of these are desirable conditions for an acquisition and I had hoped GE would either come to its senses and back out of the deal or that the French government would simply reject it.
Turns out that the French government really is against the deal, with head socialist Arnaud Montebourg, France's economy minister, detailing his opposition to the GE deal and instead, favoring a deal from Siemens (SI). Montebourg, among other things, doesn't want a "national industrial champion" to disappear into GE's massive conglomerate. Why that matters, I'm not sure, but it's as good of a reason as any for this merger to fail. France isn't exactly pro-business and this viewpoint gives a glimpse into the thought processes of France's leaders.
Montebourg goes on to say, "the government would like to examine with you the means of achieving a balanced partnership, rejecting a pure and simple acquisition, which would lead to Alstom's disappearing and being broken up." I am completely against any government sticking its nose where it doesn't belong and breaking up a deal based on protectionism or whatever other reason Montebourg has for trying to control the country that employs him. However, in this case, I hate this deal from GE's perspective so I am hoping Montebourg goes to war with GE and succeeds in stopping the deal.
The NY Times article linked above states that France's legal means for stopping the deal are limited but based on the way Montebourg is bumping his gums, it seems he is more than willing to give it a shot. This whole mess highlights the main reason I don't want GE to get involved with Alstom; when you have to deal with an irrational governing body like the disaster that is France, why in the world do you want to go there? France can apparently stop GE's deal based on national security grounds and I hope that is exactly what happens. I would prefer Siemens take on this train wreck than GE, which could find a better use for so much shareholder capital, rather than begging the French government to allow it to run its own business the way it wants.
Montebourg also reiterated his need to keep Alstom jobs in France after any merger deal, further complicating the synergies typically associated with mergers. Given that Alstom is a French company that is under the watchful eye of Montebourg and that it nearly went out of business in 2005, I'd wager its labor costs are bloated and ripe for paring back. However, that will not be possible for GE as Montebourg has made it his personal mission to kill off any hint of capitalism and with it, the typical cost savings that can accrue from buying other large companies. Essentially, GE will be running its energy businesses and Alstom separately from what I can tell, a highly undesirable outcome of a blockbuster merger.
The new development that France's government is opposed to the GE deal is a welcome one in my view because it means that GE may actually be saved from a terrible deal. GE seems committed to buying most of Alstom for some reason but I believe it will ultimately regret it, should the deal go through. I disagree with the reasons France is opposed to the deal but given the political minefield GE would have to navigate and the fact that it would essentially be unable to do what it wanted with the acquisition target, I sincerely hope France succeeds and stops GE from buying Alstom. It will be better for GE shareholders in the long run and we can, instead, let Siemens deal with that mess.
Disclosure: I am long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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