Return to industrial roots after GE’s win

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br alstom (42803535) Bloomberg An Alstom Citadis tram, operated by the Parisian Transport Authority and manufactured by Alstom, runs in Paris. General Electric has purchased Alstom's energy assets, while Alstom will retain its transport business and buy GE's rail-signalling operations. Photo: Bloomberg

Richard Clough, Thomas Black and Francois de Beaupuy New York and Paris

General Electric (GE) has clinched its biggest acquisition, the $17 billion (R181bn) purchase of Alstom’s energy assets, after the French government’s last condition was met.

Chief executive Jeffrey Immelt prevailed over a bid from Siemens and initial French opposition. Buying Alstom’s gas turbine operations and creating joint ventures in the steam turbine, renewable energy and electrical transmission businesses will help Immelt’s push to return GE to its industrial roots.

Immelt “got 90 percent of what he was shooting for, but he also made sure the business wasn’t locked and inaccessible for life between the company’s principal competitors”, said Nicholas Heymann, an analyst at William Blair & Co in New York.

The final hurdle was Sunday’s agreement by Alstom shareholder Bouygues to sell a 20 percent stake to the French state.

Bouygues has a stake of about 29 percent, which it values at E34 (R492) a share.

Concerned that Alstom’s divestitures would imperil French energy independence, Economy Minister Arnaud Montebourg made the stock deal a non-negotiable demand.

Adding Alstom’s energy units will help Immelt tilt GE back towards manufacturing after finance arm GE Capital put the parent company at risk as credit dried up during the 2008 financial crisis.

Immelt has been making acquisitions in aviation, including a $4.3bn deal for Avio’s aerospace business in 2012, and in oil and gas.

In March, GE filed for an initial public offering for its North American consumer lending unit, now called Synchrony Financial, as a first step towards exiting next year. That is when it also plans to close on the Alstom asset acquisition.

“It is consistent with their moving towards their industrial core and trying to reduce the role of finance in the business,” said Peter Jankovskis, the co-chief investment officer for US firm OakBrook Investments. “From that standpoint it is a positive move.”

Alstom will retain its transport business, which makes high-speed trains, and will buy GE’s rail-signalling operations for E602 million.

“The state has succeeded in keeping Alstom French,” Montebourg said last week, echoing a theme in the government’s efforts to inject itself into the GE transaction. Earlier, he had publicly favoured a competing offer from Munich-based Siemens as part of a so-called European solution.

Immelt’s personal involvement included an appearance before France’s National Assembly and meetings with President Francois Hollande.

Alstom chief executive Patrick Kron said he and Immelt would visit a plant in Belfort today. The event would be a town-hall style forum for workers to ask questions, a person familiar with the matter said, adding that it had been planned for several weeks on the assumption that GE would seal the purchase.

GE’s shares have struggled during Immelt’s almost 13-year tenure. The stock slid 32 percent on Immelt’s watch to $26.97 on Friday, while the Standard & Poor’s 500 index has gained 81 percent.

Shares in Siemens had dropped 1.1 percent by 3.30pm yesterday while Alstom was little changed in Paris.

Alstom’s board agreed to GE’s purchase on Saturday.

GE had agreed to pay E50 000 for each job it failed to create, pledging to add 1 000 new positions in France within three years, Montebourg said.

GE’s concessions to French politicians include alliances in nuclear technology and rail. – Bloomberg


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