It's been almost two weeks since Alstom's board "accepted" a $17 billion all-cash offer from industrial conglomerate General Electric (NYSE:GE). I say "accepted" because there still remains an outside chance that German rival Siemens (SI) or possibly another bidder can come in and steal Alstom (OTCPK:ALSMY) away before the deal closes in 2015.
While I do like GE's chances, I've recently become aware that Alstom has a break-up fee clause, in which Alstom said it would pay GE 1.5% of the purchase value if it accepted an alternative offer. Siemens, which offered an asset swap to Alstom, can still come in and sweeten the deal.
But this morning, GE got some much-needed support from a surprising source. Reuters is reporting that Segolene Royal, the Energy Minister of France, sees this deal as a "very good opportunity" for the engineering group. Royal's statements were made to weekly magazine Paris Match.
I say "surprised" because that support goes against what the French government has said regarding this deal, particularly GE's long-term involvement if this deal closes. In that same article, Royal added that GE has "the best industrial project. Why not say it?" "And why do we always try to scare away foreign investment? We actually really need it," she added.
The Reuters said that Royal qualified the comments by writing on her Twitter account that she was meeting Siemens CEO, Joe Kaeser, and liaising with Montebourg. This is good news for GE to have such a strong supporter. But it remains to be seen how much influence Royal truly has.
From my vantage point, the French government, which seemingly wanted nothing to do with GE, would much prefer for Siemens to pony up more cash and close the deal. The French government said they're concerned about potential job losses and that Siemens would be more "in-tune" with the French employment climate.
GE's CEO, Jeff Immelt took away that fear, and met with the French government's finance minister and promised to hire more workers. Immelt also said the company will make France its global base for its steam turbine, electric grid, offshore wind and hydropower businesses. GE's concessions were only good enough to appease the French government for a few days.
Siemens currently has on the table an offer to acquire Alstom's power businesses in return for its high-speed train and locomotive units. It was this offer that prompted GE to raise its bid price for Alstom by $4 billion. More maneuvering will open up Alstom to possibly more bidders. So I'm not ready to rule out a company like Honeywell (NYSE:HON).
After weeks of dragging their feet, Alstom management had no choice but to plead with the French government to get out of the way. Not only was Alstom forced to cancel its dividend, but the company's recent earnings revealed weakening fundamentals, such as a decline in orders and profits. The government is only hurting itself by standing in the way.
It's only a matter of time before this battle become history, meaning it's no longer an issue of "if" but "when" GE bags Alstom. For now, investors should applaud GE management, which knows what it is up against, for staying cool and saying all of the right things. At $26.88 per share, GE remains a buy and a sure bet to hit $30, with or without Alstom. But for the sake of investors, let's assume it will be "with."
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