GE in talks to buy Alstom's power arm: sources

PARIS Fri Apr 25, 2014 2:32pm EDT

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PARIS (Reuters) - U.S. industrial products giant General Electric (GE.N) is in talks to buy the global power division of struggling French engineering group Alstom (ALSO.PA) for more than $10 billion, sources familiar with the matter said on Friday.

The sources said a deal was backed by Alstom's main shareholder, French conglomerate Bouygues (BOUY.PA) with 29 percent, and could be announced in the coming days after an Alstom board meeting on Friday afternoon.

"Talks are going ahead swiftly, the deal's structure is defined and everything is almost ready," one of the sources said. "It would be a very big asset sale, enclosing the entire energy business."

Alstom Chief Executive Patrick Kron confirmed to union representatives there were talks about an "industrial deal", but did not name GE.

Alstom, Bouygues and General Electric declined to comment.

A deal to sell Alstom's power assets, which account for about 70 percent of total group revenue, would effectively break up the engineering group and leave Alstom as a pure transport business, already known for its high-speed TGV trains.

It could however be less politically sensitive than a full takeover offer for the company, talk of which caused Alstom shares to soar on Thursday.

"By separating Alstom Transport, which may remain an independent French company and national champion, resistance could stay muted," Berenberg's William Mackie wrote in a note.

The French government weighed into the issue anyway on Friday. French Economy Minister Arnaud Montebourg promised to protect the national interest and to study "other solutions and scenarios" for Alstom, one of France's top private-sector employers. He said he had already met Kron on Thursday and would meet GE's Chief Executive "shortly".

Alstom was bailed out by the French state in 2004 and relies heavily on orders from national rail operator SNCF and utility EDF (EDF.PA). It employs 18,000 people in France, half of them in the power business, out of 93,000 worldwide.

The deal could value the group's power assets - which include turbines for coal, gas and nuclear power plants, wind farms and systems for power transmission and distribution - at over $10 billion, analysts said.

One source familiar with the matter gave a price tag of $13 billion including debt.

GE has a market capitalization of $265 billion.

Trading in Alstom shares was suspended Friday pending a statement from the company. The shares closed up 10.9 percent on Thursday after Bloomberg reported that GE was in talks about a $13 billion full takeover bid for Alstom.

Before that report, Alstom shares had slumped 20 percent in 12 months on concerns over its cash flow, and its weakening prospects prompted Bouygues to take a $1.9 billion writedown on its stake in February.

Alstom is much smaller than its other main rival, German group Siemens (SIEGn.DE), and has seen orders slump since the 2008 economic crisis depressed demand for new power equipment.

In need to raise cash, Alstom had reached out to GE, two industry sources said. Bouygues has declined to comment beyond saying said it supported the company's strategy.

Alstom announced 1,300 job cuts last year and put assets up for sale to raise cash, including a stake in its transport business, which makes France's prized high-speed TGV trains. It also floated the possibility of an IPO.

De facto, if a deal with GE left Alstom with just its transport arm, a listing would no longer be needed. Bouygues could remain a shareholder of the smaller entity.

Shares in Bouygues closed up 4.17 percent on speculation a deal would enable Alstom to return cash deal to shareholders, either via an exceptional dividend or a share buyback.

Industry sources said Alstom was strong in steam turbines used by the nuclear industry while GE is a top player in gas turbines and not so strong in steam. A deal would also enable GE to grow in wind power and grid technology, they said.

GE, which already employs over 10,000 people in France, has signaled it wants to increase its industrial footprint relative to its financial activities.

Ten years ago, when France was negotiating a bailout package for Alstom with European Competition Commissioner Mario Monti, Siemens was in the frame as a potential buyer of its power arm. In the end, then French president Nicolas Sarkozy balked at the prospect of German ownership and Alstom stayed intact.

A report in Friday's Le Figaro newspaper said Alstom had looked at a similar potential asset swap with Siemens more recently, whereby Alstom would have exchanged its power business against Siemens' rail business. Siemens declined to comment.

(Additional reporting by Natalie Huet, Gilles Guillaume and Dominique Vidalon in Paris, Anjuli Davies in London and Lewis Krauskopf in New York; Writing by Natalie Huet and Andrew Callus; Editing by Andrew Roche)

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