Orchestrating Alstom follows long French tradition

AP News
Posted: Apr 28, 2014 1:16 PM
Orchestrating Alstom follows long French tradition

PARIS (AP) — France's Socialist leader summoned three CEOs to the presidential palace on Monday to orchestrate the sale of Alstom, an engineering firm and treasure of French industry, in the government's latest effort to bring globalization to heel.

President Francois Hollande's decision to jump into the talks on a proposed merger with either General Electric or Siemens is part of a long tradition of French state interference in corporate life that claims to protect national security and to keep jobs and companies in the country.

This government has already scuttled Yahoo's attempt to buy a videosharing website, gotten into a spat with a freewheeling American CEO over the work habits of workers in a factory for sale, and tried unsuccessfully to stack the deck in the sale of a mobile phone company.

In Alstom's case, the economy minister stepped in early to suspend any potential deal between GE and Alstom, estimated to be worth around 10.5 billion euros ($14.5 billion). That gave time to Siemens, a German conglomerate, to enter the negotiations at the last minute, bolstering Alstom's — and the French government's — negotiating position.

The three companies are leaders in making vital equipment for power generation, and analysts say any merger could shift the dynamics of the power industry for years to come. In addition, Alstom pioneered TGV high-speed trains and exported them around the world.

Alstom's roots stretch back nearly a century, and French Economy Minister Arnaud Montebourg pointedly recalled that it depends on public contracts, even if the state has a stake of less than 1 percent.

"We realize that the stockholders have an interest, but the government also has interests and ours are for economic sovereignty," Montebourg, whose job includes industrial renewal, told RTL radio on Monday. "French companies are not prey."

Montebourg, an outspoken Socialist, has stopped deals before, as have previous conservative governments. What to many in the U.S. or Britain might be called protectionism has a different word in French — dirigisme —that better translates as "directionism."

"The government has a voice," Hollande said Monday. "I have only one criteria: What is best for keeping business and jobs in France? And only one obligation, because I am the head of state: What will ensure France's energy independence?"

But ultimately, there is little the government can do beyond putting pressure on companies through rhetoric, according to Laurent Warlouzet, a professor at the London School of Economics who studies the history of French industrial policy.

"There is a discrepancy in France in my opinion between the discourse and the reality," Warlouzet said. Between globalization and European Union regulations, he added, French politicians "don't have a lot of power anymore."

A previous deal blocked under Montebourg's direction was Yahoo's attempt to purchase the French videosharing website Dailymotion, which he called a "strategic" decision to keep the service in French hands.

Montebourg also intervened unsuccessfully in a bidding war for France's No. 2 mobile phone operator, making clear the government's preference would be conglomerate Bouygues. And in the failed sale of a French Goodyear factory, he tangled publicly with an American potential buyer — Titan CEO Maurice Taylor— who derided the work habits of the employees after a visit to the site.

Despite Montebourg's reservations, Hollande is open to the idea of a proposed merger between Alstom and General Electric Co., officials close to the talks said. The officials spoke only on condition of anonymity because the negotiations are sensitive.

The president spent an hour with the head of GE, Jeff Immelt, and was to sit down later with the chiefs of Siemens and Bouygues, a significant Alstom shareholder.

In a statement, GE, which is headquartered in Fairfield, Connecticut, said the meeting between Hollande and Immelt was "open, friendly and productive."

Alstom's trading has been suspended since Friday when rumors of the GE deal surfaced.

Montebourg suspended the GE deal to allow time to consider any Siemens offer, whose details were not released but were believed to include a potential swap of the divisions for transportation and energy.

Siemens said it would decide after meeting Hollande "whether to make an offer for Alstom and what it would contain."

Alstom itself was saved from a Siemens buyout in April 2004 by Hollande's conservative predecessor, Nicolas Sarkozy, whose government bought a 21 percent stake.

No matter where Alstom winds up "it's really a once in a generation type transaction that will to some extent redefine the landscape across the power industry," said William Mackie, an analyst with Berenberg.

Michel Barnier, the European commissioner for internal market and services — and a former conservative French government official — acknowledged the state's right to intervene, but was tempered in his current role, which he has held for four years.

"For a government to be proactive, that's a good thing," he told Radio Classique on Monday. "But not to arbitrate. We are in the private sector. We are no longer in controlled economies."

The interview was available midday on Dailymotion, which is now in the hands of Orange, the former national telephone company still one-quarter owned by the government.


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