BY Matt Atkins
The French government has successfully negotiated a deal to purchase a stake of rail and energy group Alstom from its largest shareholder, French conglomerate Bouyuges. The agreement grants the government an option to buy up to 20 percent of Alstom shares from Bouygues, removing the final hurdle in Alstom's sale to US rival General Electric Co. (GE).
According to Bouygues, which has business interests ranging from construction to telecommunications, the government's option to buy Alstom shares will last for 20 months, beginning after the GE-Alstom deal closes. The government will only be entitled to a 15 percent stake if it does not exercise the option during this period.
GE’s original proposal has changed dramatically since it was first mooted, owing largely to French government pressure. Initially, the US firm offered $17bn for the whole of Alstom's energy business. The government effectively blocked this offer and gave itself veto powers, insisting on assurances for the preservation of Alstom’s strategic operations, the safeguarding of French control over its nuclear business and guarantees on employment.
The new deal, accepted by Alstom’s board on 21 June, will see GE buy Alstom's operations that manufacture natural gas turbines for power plants. In turn, Alstom will buy GE's railway signalling systems division. In addition, GE and Alstom will create three equally owned joint ventures, for power grid, renewable energy and nuclear power businesses. These projects will employ thousands of people in France and make politically sensitive technology, such as turbines for nuclear plants.
The government has declared it will purchase its stake when Alstom shares are trading at their lowest levels. However, this decision may see the state lose money. Part of GE's cash payment – estimated by government officials at between €8bn and €10bn – will be returned to Alstom's shareholders. With Sunday's agreement, Bouygues now is entitled to some of that cash, instead of the government.