Dirigisme Sucks: French Meddling in GE Buying Alstom

♠ Posted by Emmanuel in , at 6/26/2014 01:30:00 AM
Sold to the highest bidder: Alstom purchased by GE
So the deed is done: French "national champion" Alstom--a global powerhouse in passenger trains and nuclear power generation--has sold a large chunk of its prized energy assets to the American Company Making Everything, General Electric, for the princely sum of $17 billion. This, however, was done with a lot of meddling from the French government. First it asked for an unsolicited counteroffer from the German industrial powerhouse Siemens. Second it safeguarded its "veto power" over Alstom through buying a 20% stake in it:
As France prepared for a night of soccer frenzy, hoping to see its team crush Switzerland in the World Cup, Economy Minister Arnaud Montebourg appeared in Paris with a surprise announcement. His government planned to purchase a 20 percent stake in Alstom SA (ALO), the French manufacturer at the heart of a takeover battle between Fairfield, Connecticut-based General Electric Co. (GE) and Siemens AG of Munich, Montebourg told a press conference hours before kick-off on June 20. GE would gain energy assets from Alstom for $17 billion, while a competing group led by Siemens walked away empty-handed.

Montebourg’s coup stunned participants in the takeover as much as observers. Just hours earlier, GE Chief Executive Officer Jeffrey Immelt emerged from the French presidential residence after an amicable 45-minute meeting with the Socialist head of state, Francois Hollande, according to a French government official. Under the crystal chandelier of the Green Salon, with its views of the Elysee Palace gardens, Immelt learned that he would win the deal, clinching the biggest takeover in the U.S. company’s history, the official said.

The catch: the government’s demand for a stake in the rest of Alstom, which it would buy from construction group Bouygues SA. (EN) Montebourg only produced that nugget after Immelt returned from the courtyard of the Elysee to the offices of GE’s power-conversion unit on the other side of the Seine River, where the U.S. company had set up shop for its CEO during his increasingly frequent trips to the French capital. 
GE cannot possibly ask for a more interventionist partner than the French government which now holds 20% of the energy unit to the American firm's 80%. Indeed, this may occasion further French government intervention as its moribund national champions are sold one by one and the fear of its industrial base disappearing mounts:
As part of the transaction, GE will buy outright Alstom’s lucrative gas turbine business, and create joint ventures in nuclear and steam power, renewable energy, and electric grids. Those ventures will make it a long-term partner of the French state, which in addition to its direct Alstom shares will also have a veto over some decisions in the nuclear business.

The structure is much changed from GE’s initial proposal, which envisioned a more straightforward acquisition of all of Alstom’s energy assets, accounting for almost three quarters of its sales. With Hollande’s political allies congratulating themselves on averting the disappearance of a major French company into the vortex of a U.S. conglomerate, the deal may provide a blueprint for political intervention in future takeovers.
Another article from Bloomberg bemoans precisely this kind of intervention in the context of establishing startups of which there are precious few in France. If supporting "national champions" was truly the way forward, the country would obviously not find itself in the funk it is currently in:
French business has long favored corporate conformity over taking risks, says Marie Ekeland, a partner at Elaia Partners, a private-equity boutique in Paris. The CAC 40 Index (CAC) is loaded with conglomerates, banks and manufacturers -- and not one young Internet technology powerhouse. “We’ve lacked an entrepreneurial culture throughout our whole society,” Ekeland says. “That’s why we have such a problem with economic growth.”

France’s current travails have plunged the country into a deep funk. Its industrial icons are struggling; on June 22, Alstom SA, the ailing rail transport and power equipment manufacturer based in Paris, agreed to sell its energy assets to Fairfield, Connecticut–based General Electric Co. (GE) for $17 billion. Francois Hollande, the nation’s Socialist president, is foundering; his approval rating of 18 percent in recent polls was the poorest showing of any head of state in the postwar era. 
The point is this: Alstom exemplifies stodgy old France and its backward-looking corporate culture. The wildly unpopular government certainly isn't doing itself any favors. Why don't they instead focus on inspiring new firms in industries of the future instead of trying to hang on to these relics? France has been unsuccessful in engineering these national champion's future viability, that much is certain. Meanwhile, I have no qualms whatsoever with GE's purchase; this is capitalism.