On Wednesday, I warned General Electric (NYSE:GE) investors to prepare for the worst. With prolonged political shenanigans from the French government, I don't believe General Electric's diplomacy was enough to outmaneuver German rival Siemens (SI) for Alstom (OTCPK:ALSMY).
Although General Electric's $17 billion offer for Alstom's power business has already been approved by Alstom's board, the French government insists that this deal will happen "over their dead body." Thursday, GE investors were reminded to not underestimate the resolve of Jeff Immelt, the company's CEO. Although Immelt has come under fire recently, he has done and said all of the right things to ensure this deal is closed. But patience has its limits.
In a story just released by Reuters, Immelt said that the company is ready to extend its offer to Alstom for another month - until June 23. Recall, the original deadline of June 2 was fast approaching. Last week, the French government insisted that GE should revise its bid. Immelt, saying he wants to allow enough time to negotiate, apparently agrees. I won't deny that this is a nice gesture. But how long is GE willing to bite its tongue while the French milk the coffers for more money?
We already knew that the French government wasn't happy about the deal, which was originally for $13.5 billion. We thought money was the object. But even after General Electric raised its bid by an additional $4 billion, it still wasn't enough. Next, the French government raised concerns about the possible loss of French jobs.
But Jeff Immelt, GE's CEO, 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.
The French government last week gave itself the power to block foreign corporate takeovers in "strategic" sectors. But they're more than willing to pawn off Alstom to Siemens, which 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. But Siemens recently said that it is considering raising its bid. And it would only cost Alstom, which accepted GE's bid, 2% of the offer price.
Jeff Immelt, who said he expects this deal will close, has not given up. Investors believe he should. But Immelt told an investor conference on Wednesday that, "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."
Immelt was asked about the potential for a lengthy battle with Siemens and the French government, he responded, "You have to trust us a little bit that we know what we're doing."
Unlike most GE investors, I believe Immelt deserves more time to get this deal done. Alstom will further GE's goal of returning more toward its industrial businesses and away from its finance unit. As it stands, the company now expects 75% of its earnings to come from industrial businesses in the next two years, up from 55% last year. It is this business that is driving revenue and earnings. Maybe investors should be happy that GE is not walking away.
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