NEW YORK - General Electric inched closer to buying the energy-related businesses of France's Alstom by making a $16.9 billion bid, but rival offers and the concerns of French politicians may hold up or scuttle the deal.
GE's bid, announced Wednesday, has been endorsed by Alstom's board, but the board will wait up to a month to formally accept or reject it. GE would obtain the parts of Alstom that make and service electric power generation and transmission equipment. Alstom would keep its transportation division, which makes high-speed trains.
GE values the acquisition at $13.5 billion because it will acquire $3.4 billion of Alstom's cash if the deal closes.
But the deal is far from done. France's government, which regularly intervenes in corporate decision making, has questioned whether selling Alstom to Fairfield, Connecticut-based GE threatens the country's energy independence and jobs. Alstom has formed a committee of independent board members to examine GE's proposal.
Officials in France had pressed for a delay to allow GE's German rival, Siemens, time to form its own bid. Siemens said in a statement Tuesday that it would make an offer if Alstom allowed it access to company data and allowed it to perform due diligence.
Alstom's board said it unanimously recognized the GE deal's strategic and industrial merits, and Alstom called the deal "practically perfect."
GE CEO Jeff Immelt said in a conference call with investors Wednesday that Alstom first contacted GE about a deal in mid-February. He said the French company questioned whether it was large enough and geographically spread out enough to remain profitable over the long term in the global energy business.
The deal would put GE back into businesses it has abandoned, including equipment that generates electricity in hydroelectric plants and with steam in coal-fired and nuclear plants. That business is not expected to grow at all in Europe, but it could help GE grow in developing markets.
"Alstom is uniquely well-positioned in the regions of the world that need power," said Nicholas Heymann, an analyst at William Blair, including Africa, the Middle East, and Southeast Asia.
Heymann questioned whether Siemens has the cash to make a good offer to Alstom. It is already in talks to buy the power generation assets of Rolls-Royce, and credit agencies have suggested Siemens is at risk of a downgrade if its cash balance dips much further.
Siemens could offer Alstom a swap, though, sending its railroad division to Alstom in exchange for Alstom's energy business. That would likely be welcomed in France because it would bolster Alstom.
If GE prevails, though, finance chief Jeff Bornstein said GE would use $9.5 billion of its own cash and borrow $4 billion, to be paid back over five years, for the rest. The deal is expected to immediately begin adding to GE's earnings per share after it closes. GE said it would continue to pay and grow its dividend, but cut back on share buybacks and likely refrain from other acquisitions through next year.
GE expects to cut $1.2 billion in annual costs after the deal closes. That usually involves closing factories and cutting jobs, just the kind of thing French politicians are concerned about.
GE said it does expect to consolidate some manufacturing operations, support functions and research and development. But Immelt noted that much of Alstom's operations are located outside of France and Europe.
"These guys have a massive global footprint that is primarily outside of France, so there are things that can be done around the world," Immelt said. "This is not our first deal in France...we had a good perspective on what we had to do."
GE employs 11,000 people in France at three main industrial centers, and is part of a 40-year-old joint venture with a French defense contractor that makes jet engines. Alstom's energy businesses employ 65,000 people, including 9,000 in France.
Immelt said the deal wouldn't close until 2015, but he was confident it would go through. "We come at this with a ton of experience."
Experience, though, isn't necessarily what France is looking for.
France's left-leaning daily Liberation wrote Wednesday that while the GE deal is generally acknowledged as the one that makes the most sense economically and that has the potential to be the least damaging in terms of jobs, "there's one problem: it's American."