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Is France right to meddle in Alstom?

Monday, June 23, 2014 - 02:21

Alstom says the French state is wise to become the engineer's top shareholder as a condition of its tie-up with U.S. conglomerate General Electric. But is the government right to get so involved in private deals? Sonia Legg reports.

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There's been no hiding the French government's involvement in the Alstom deal. And now it has an option to buy a 20% stake in the engineering firm from construction group Bouygues. The last minute agreement cleared the way for the sale of Alstom energy to General Electric. Alstom's CEO Patrick Kron said it would be a sound investment. (SOUNDBITE) (French) ALSTOM CEO PATRICK KRON SAYING: "It's a good deal for Alstom whose activities and jobs will be consolidated, it's a good operation for General Electric whose industrial reasoning is maintained and this deal seems to me to meet the State's concerns." Economy Minister Arnaud Montebourg said the agreement was a way of protecting key industries. But Pierre Briancon from Reuters BreakingViews says it's more about an unpopular President trying to appease some unruly ministers. (SOUNDBITE) (English): PIERRE BRIANCON, REUTERS BREAKINGVIEWS, SAYING: "It is not because they want it, it's because Hollande wanted to give a concession to his highly interventionalist, anti-globalisation Economy Minister Arnaud Montebourg who lost the deal. He wanted Siemens to take over Alstom, he lost the fight, and so Hollande said I want the guy inside the tent pissing out and not outside pissing in, and so I will give him that concession." Under the deal GE will buy most of Alstom energy assets. It will sell its rail signalling division to reinforce Alstom's transport business. They'll be joint ventures in the power grid and renewable energy. And nuclear turbines will be controlled by the government. The state often intervenes in France and many criticise them for it. But Commerzbank's Peter Dixon has some sympathy with the "national champion" approach. (SOUNDBITE) (English): PETER DIXON, EUROPEAN ECONOMIST, COMMERZBANK, SAYING: "There has been over the course of the last 20 years a sense that the market will provide and the capital should go to where it is most productive but it's questionable whether it's creating the right kind of outcome for places like France and maybe even the UK so I think maybe we need to see a different debate over the course of the next few years about how capital will be used." Alstom will get almost 17 billion euros from GE. It will have to reinvest 2.5 billion of that in the joint ventures. But it will be able to pay off debt, strengthen its transport division and return cash to shareholders. Assuming of course the unions, competition watchdogs and shareholders approve - and that could take until early next year.