The New York Times is reporting this morning General Electric (NYSE:GE) CEO Jeff Immelt and executives from German rival Siemens (SI) arrived in France to meet before the Economic Affairs Committee in the lower house of the French Parliament. Both companies are seeking to win legislator approval for their competing bids.
It's been over a month since industrial conglomerate General Electric made its initial $13.5 billion bid for the energy business of struggling French company Alstom (OTCPK:ALSMY). Several weeks later, due to resistance by the French government, GE upped its proposal by $4 billion and promised to not cut French jobs upon the completion of the deal. But this wasn't enough.
German rival Siemens then entered the discussion. Wanting Alstom's power businesses for itself, Siemens proposed an asset swap. In return, Siemens is offering Alstom its high-speed train and locomotive units. And to "sweeten the deal," Siemens said it is ready to offer a "significant" amount of cash to Alstom shareholders.
In the process, the French government has been playing both sides. This is even though France's Economy Minister, Arnaud Montebourg, has been in favor of the Siemens offer after saying Siemens' interest would create "two European and world champions in the fields of energy and transport." But Mounteborg, who is known for "preserving" French assets, also has an interest in strengthening Alstom to become more viable in the area of transits.
Fast-forward two week later, Alstom's board formally accepted GE's bid. But Montebourg resounded by saying he is prepared to block any deal he "considered unsuitable" in terms of the long-term interests of the French company, its employees and the economy. But are we talking about the same company?
The way I see it; before General Electric expressed any interest in Alstom, very few non-French speaking people even knew that Alstom existed. And now the French governments is pretending that Alstom is the best thing since sliced bread. Alstom was on the verge of collapse a decade ago. Everyone is suddenly interested in "preserving its value."
Note, French billionaire Martin Bouygues owns a 29% stake in Alstom. Bouygues was forced to absorb a $1.9 billion write-down on Alstom due to a 37% drop in its shares over the past year. Due to the economic slowdown in Europe, Alstom, which specializes in high-speed TGV trains, has lowered its profit guidance, which led to debt-rating downgrade by Moody's. Several weeks ago, Alstom's CEO pleaded with the French government to unblock this deal, saying the company's long-term health depends on it.
The French government responded last week by giving itself the power to block foreign corporate takeovers in "strategic" sectors. So I remain skeptical by what the GE hopes to achieve this week with its meeting in France. Wednesday, President François Hollande will meet for a second time with Immelt to "give him another chance" to soothe French worries about the company's bid. But Immelt has done nothing but concede to every French demand since discussions began.
Last week in a conference with investors, Immelt said, "We wouldn't have started if we didn't think we could finish." He added that, "It's a deal that's executable. It's a deal we're experienced in." I've said this before, Immelt deserves more time to get this deal done. And I believe it, despite these headwinds, it will get done. But I don't believe Alstom deserves a penny more, which is what this week's meeting in France is about.
The odd part about all of this is that Siemens win either way. Siemens is delaying the inevitable, even though it knows it is being used as a pawn by the French governments. By fighting, Siemens saves face with its own shareholders and weakens GE's financial position by doing so. For GE, which wants Alstom to further its goal of returning more toward its industrial operation, it's the cost of doing business.
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