The board of Alstom SA backed a proposed merger with General Electric Co (GE) on Saturday, as the French government reportedly neared agreement with shareholder Bouygues SA over the last major outstanding plank of the deal.
An accord is taking shape on the price at which the government will acquire 20 percent of Alstom from construction group Bouygues, two sources familiar with the discussions said, adding that it was likely to have been finalized yesterday.
Bouygues, GE and Alstom all declined to comment on the ongoing stake sale negotiations in the wake of the French industrial group’s board formally endorsing the plan with unanimous support.
“[The GE deal] not only addresses the interests of Alstom and of its stakeholders, but also provides assurances in connection with concerns expressed by the French state,” Alstom said.
French President Francois Hollande earlier raised the pressure on Paris-based Bouygues, warning that failure to agree upon a price for the stake purchase could still derail the merger.
“If this sale did not go ahead at a price acceptable to the government, it would be necessary to reconsider the alliance as it has just been announced,” Hollande told reporters in Paris.
On Friday, the French government backed the proposed deal with GE, which values Alstom’s energy business at 12.35 billion euros (US$16.77 billion).
In so doing, the government rejected a rival Siemens-Mitsubishi offer that it had previously encouraged, as ministers sought guarantees on domestic jobs and activities deemed strategic.
The announcement drew a line under a two-month battle for Alstom that had become heavily politicized as soon as the first reports of an agreed merger with General Electric appeared in April.
However, the official green light remains subject to strict conditions agreed upon with GE — as well as the government’s purchase of the Alstom stake from Bouygues.
French Minister of the Economy, Finances and Industry Arnaud Montebourg had said on Friday that the state would pay only market price for the shares, which closed at 28 euros, valuing Alstom at 8.65 billion euros.
However, Bouygues values the holding at 34 euros per share in its accounts — a premium of 380 million euros, or 21 percent, over its 1.73 billion euro market capitalization.
Bouygues had originally paid 2 billion euros to acquire the holding from the government in 2006, two years after a state-backed bailout.
“[Bouygues] does not feel bound to accept just any price presented by the government as non-negotiable,” a source close to the discussions said on Saturday.
“They want to keep a cool head and find a balanced deal that respects shareholders and governance rules... As in all such discussions, people will try to use all possible leverage,” he added.
Pressure on Bouygues may have been heightened by its embattled telecoms division’s growing need for supportive government reform and regulation of the sector.
Officials are still examining possible deals or market measures to shield Bouygues Telecom SA and its jobs from low-cost rival Free. Bouygues earlier failed to secure a merger with rival operator SFR despite government backing.
The GE-Alstom deal announcement followed two days of intensive talks with Alstom chief executive Patrick Kron, GE boss Jeff Immelt and their Siemens and Mitsubishi counterparts.
The US group would acquire most of Alstom’s energy business including gas and steam turbines for power plants, while handing over its own rail signaling division to reinforce the TGV train manufacturer’s transport offering.
The tie-up also establishes three GE-controlled joint ventures in France to house Alstom’s power grid, renewable energy and strategically sensitive nuclear turbine businesses.
GE’s 7.3 billion euro cash outlay amounts to a smaller windfall for Alstom shareholders than envisaged by earlier proposals, reflecting a narrower perimeter of activities purchased outright.
Despite the concessions, granted in response to French concerns, the revised plan “remains accretive in year one,” Immelt said in response to the Alstom board’s approval.
“For GE, the overall economics of the deal remain intact,” he said in a company statement, adding that the transaction is expected to close next year.
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