French Plan for Alstom Hits Snag on Share Price

By Dow Jones Business News, 
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PARIS -- The French government's plan to become Alstom SA's largest shareholder before clearing General Electric Co.'s proposed purchase of large parts of the French engineering giant has hit a rough patch: the price of Alstom shares.

The French government is intent on buying a 20% stake in the maker of power equipment and bullet trains from Alstom's core shareholder, Bouygues SA, at a maximum of 28 euros($38) a share -- the stock's closing price on the Paris Bourse on Friday, according to people familiar with the matter.

But Bouygues, which is seeking to raise cash to finance a restructuring at its telecom unit, wants to walk away with a significant premium over Alstom's last trading price, people familiar with the matter said.

French President Francois Hollande said Saturday that the government's final go-ahead on GE's purchase of most of Alstom hinged on the outcome of negotiations with Bouygues over the weekend.

On Saturday, Alstom's board said it had officially accepted GE's sweetened offer for its power-equipment unit. The U.S. company on Friday changed its $17 billion initial offer for the whole of Alstom's power business to make it more palatable to the French government, which has been reluctant to let the industrial jewel fall into U.S. hands and potentially threaten French jobs.

But under GE's revised bid, France would retain a firmer grip on the company.

Alstom would sell its gas-turbine business, the largest part of the power-equipment unit, to the U.S. company and house the French part of its steam and nuclear turbines, renewable-energy activities and grid equipment in 50/50 joint ventures with GE.

The board said the new offer benefits Alstom, its shareholders and other stakeholders.

The new GE offer still values the power-equipment business at $17 billion, but values the Alstom investment in the joint ventures at 2.5 billion euros, Alstom's board said Saturday.

After the transaction, Alstom will buy GE's train-signaling business and merge it with its own train business, which makes the signature French bullet trains. Alstom intends to focus on its train business in the future, the board said.

Economics Minister Arnaud Montebourg, who has used a heavy hand in the tug of war over Alstom, on Sunday moved to assuage French concerns over the deal, saying in an interview with the daily Le Parisien that it won't cost taxpayers a cent.

"Clearly, if there is no state entry [into Alstom's capital equity] because Mr. Bouygues doesn't want to sell his shares, the deal with GE won't take place," Mr. Montebourg said, referring to the conglomerate's chief executive, Martin Bouygues.

He added that the government can pay for the stake with the proceeds from the sales of stakes in such companies as Aeroports de Paris SA, Airbus Group NV and Safran SA, and that the state has 2.7 billion euros in its coffers.

The original attempt to buy the Alstom assets in late April angered Mr. Montebourg. He struck back, encouraging GE's German rival Siemens AG to team up with Japanese firm Mitsubishi Heavy Industries Ltd. to make a separate offer.

The GE response to the Siemens-MHI counter offer eventually convinced the French minister. Alstom's board followed Mr. Montebourg and accepted the GE bid.

Under terms of the deal made public so far, GE will get the majority of what it sought in first attempting to acquire Alstom, especially its global business in manufacturing and servicing gas and steam turbines, the giant machines at the heart of power plants.

Alstom's steam-turbine business will raise GE's involvement in coal-fired power, especially in regions of the world where such facilities are still being built, such as China and Africa. GE officials say that will complement GE's existing business making turbines for gas-fired power plants, in which it is the world leader.

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