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Summary

  • Alstom's profits, for the year ended March 31, are down 28 percent.
  • Patrick Kron, CEO of Alstom, seems to have the situation under control and has specific plans for the future to make the company whole.
  • The French government has a different goal... to keep itself in office.

Patrick Kron, chief executive officer of Alstom SA (OTCPK:ALSMY), has taken his company through a bailout and has brought the company to where it is today.

As many have noted, the company is not doing exceptionally well. The company's numbers, released yesterday, show a 28 percent decline in profit for the year ended March 31. Alstom is making a profit and has recovered to the point where Mr. Kron and the company can make decisions that can control the future destiny of the company.

This is an accomplishment that should be recognized and applauded.

Having come this far, Mr. Kron should have a pretty good idea of where he believes the company should go. These ideas have been captured in the deal Alstom has crafted with General Electric Co. (NYSE:GE).

Mr. Kron does not see the future of Alstom in its energy division, but he does see its future in the signaling business. He does not believe that any synergies would be achieved by taking on GE's freight train business and merging it with that of Alstom.

The French government does not seem to agree with this assessment. The problem is that pride and the political problem of satisfying its electoral base is clouding the viewpoint of French President Hollande and the French economics minister Arnaud Montebourg.

The "pride" seems to be centered in France's high-speed TGV trains, made by Alstom. This pride seemed to be very important in the earlier bailout that was provided to Alstom by the French government.

Now, however, the train business in Europe, which Mr. Kron considers to be a niche business, cannot provide the scale Alstom needs to be successful and Alstom's energy business is too small to really be competitive in a market where there is overcapacity.

Mr. Kron is very interested in the railway signaling business, an area that Alstom does have an important presence in. Although Alstom competes against GE and Siemens AG (SI) in this market, there seems to be a vast amount of business coming in this area over the next few years.

Mr. Kron sees this opportunity as the place where Alstom can really shine and carve out its reason for staying in business.

And, this seems to be the major focus of Mr. Kron and Alstom. Although the recently released financials are not that strong, Mr. Kron is quoted as saying "'the house is not on fire' but the group needs to sell its energy business to secure its long-term future."

It seems to me that Mr. Kron has a very good feel for the situation his company is in. Mr. Hollande's French government only seems to be trying to save face with its political base.

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Source: France: Let Alstom Make The Decision About General Electric's Bid