The bursting of Alstom, a French industrial flagship weakened by the crisis, is now on track. After months of negotiations, the French group announced on Wednesday, November 5, to finally sign the final agreement with General Electric, the American colossus that should resume its activities in the energy to 12.35 billion euros and thus integrate 65,000 additional employees.
In June, a tentative agreement reached under the auspices of the state had ended the battle between Siemens and General Electric, both candidates for the acquisition of essential Alstom. But for exclusive negotiations with the US group to finally conclude a contract in good and due form, several steps were still needed. They have just been completed. The group unveiled a biannual medical report which shows that the company’s dossier is not at its best.
The state gives green light
The government has given the green light to the acquisition. In May an order made at the initiative of the Minister of Economy Arnaud Montebourg among a competitive environment had integrated energy among the strategic sectors and thus given a veto to the government on any foreign investment in this area.
It is for this reason that the new host Bercy, Emmanuel Macron, validated the agreement in on Tuesday.
“Emmanuel Macron has ascertained, vigilantly, that the interests of the state, the sustainability of nuclear power and security of energy supply in France are fully taken into account in this operation.”
The new Alstom, through this transaction, have all the means to develop into a French and European champion in the transport sector.”
At the opening of the Paris Stock Exchange at 9 am, the title of the industrial group was operating in the red after the green light from Bercy. The state has not decided whether it will buy 20% of stock.
Mr. Macron also recalled that the French State retained the right to repurchase 20% of Alstom after the GE-Alstom agreement is fully realized. It was one of the conditions set by the government to accept the butchering of Alstom: to enter the capital of the rest of the French group. Yet nothing has changed since the agreement with Bouygues had been signed in June, which has agreed to sell up to 20% of Alstom to the state.
“Normally, the call option would be activated only as of the closing of the transaction between General Electric and Alstom, probably around mid-2015,” says a source close to the case.
According to our information, the state has not yet decided whether to exercise this option, the duration was set at twenty months. There is no emergency: Bouygues has agreed to lend to the State the voting rights attached to these shares throughout the period of the call option.
The approval of competition authorities to be obtained
Elected staff have also chosen not to stand in the project. At the European Group Committee held on 28 October, fifteen representatives voted in favor, seven against, while twelve were neutral.
In the process, some 90 national committees delivered their opinions. They were only advisory, “but the unions could have refused to act, to block the folder” says an elected official.
Now, the project can move forward, because the case is not blocked anymore. The merger with General Electric in the gas and steam turbines must still pass the dam authorities responsible for ensuring compliance with competition.
From China to the United States via India, more than a dozen of them were seized worldwide. Their responses are expected by mid-2015
“We trust, even if Siemens may go to Brussels to put us a spoke in the wheel” whispers one of the architects of the project.
The shareholders are convinced
Investors will also be asked to approve the project at a general meeting called for on December 19. Bouygues, the main shareholder with 29.4% stake, will vote in favor of the project. But we have to convince the other partners.
Key question about the billions paid by General Electric is how they recover the shareholders directly through a special dividend, and how the group will be maintained?
“An important part will be used to strengthen the group and support its development,” promised Wednesday CEO Patrick Kron.
“It should not be that shareholders are too greedy and the new Alstom, refocused on transport, will be left with too little money,” signals Didier Lesou, CFE-CGC.
His colleague Philippe Pillot of Workers Power is on the same page: “We need funds to make acquisitions, but also to pass the cyclical trough and pay restructuring.”
The group displays signs of fragility
The half-yearly health bulletin issued on Wednesday by Alstom shows that the group is not in the best shape. From one year to the next, the first-half profit was down by 32% to €255 million.
“This is proof that the diagnosis of Patrick Kron was right: Alstom needs to be backed by a partner,” says a resource close to the leadership.
The two branches of the group show signs of fragility. In energy, the party must be sold to General Electric, April sales in late September fell by 9% to € 6.3 billion, and net income declined by 16 % and the cash flow is, “strongly negative, a CM-CIC analysts.
The crisis in Europe, which encourages electricity companies to limit their investments, clearly continues to weigh on the tricolor champion.
For the side transport, benefit of the fall is much stronger: it collapsed by 72% in one year. Blame “punctually high financial charges” and “large restructuring,” says management.
Mr. Kron is reassuring. The turnover of the industry, which manufactures trains, trams and underground trains, rose 13% at constant perimeter and constant exchange rates, and operating income improved 21%. The result of “a good implementation of ongoing projects” and a “strict cost control.”
Especially, orders more than doubled to €6.4 billion. A record obtained through a contract of €4 billion won in South Africa for 600 suburban trains and maintenance for 18 year.
Confident, CEO ensures that the operating margin will be “above 5%” throughout the year, which closes in late March. And should then “gradually improve” to be closer to 7%. Alstom future, confined to transport, would have every chance.
Inside the company, some are more circumspect. Especially in Belfort, the birthplace of Alstom where management has reduced the use of temporary and when it comes to partial unemployment.
A possible social plan for 330 people is even mentioned. “In our business, there is large excess of production capacity in Europe, and some sites do not have much to do,” says a trade unionist. “Decisions will surely be taken shortly.”