(Adds Alstom no comment, other perspective on deal)
PARIS May 6 French President Francois Hollande said General Electric's bid for Alstom's energy business is not acceptable as it stands, and the government's aim is to get better offers.
"The bid is not good enough, it's not acceptable," Hollande told RMC radio on Tuesday.
Asked whether it was possible that the state, which currently holds around 1 percent of Alstom, could increase its stake in the ailing engineering group, he said: "For now I would prefer to get better offers."
Alstom said last week it was reviewing a binding $16.9 billion bid from GE for its energy arm, although it has not turned down a rival offer from Germany's Siemens.
French Economy Minister Arnaud Montebourg came out against the GE offer on Monday, but opened the door for a deal that would also combine the two companies' rail businesses.
"In its current form, we unfortunately cannot give backing to the proposals that you have made based solely on the purchase of Alstom's energy activities," Montebourg wrote in a letter to GE's chief executive, Jeff Immelt.
GE reiterated its statement from Monday, in which it said: "We believe our proposal is good for France, for Alstom and for GE," adding, "We are open to continuing dialogue."
Alstom declined to comment.
Some analysts doubted the logic behind combining Alstom and GE's transport businesses.
GE's transportation unit sells diesel-electric locomotives mainly used for freight rail applications, which is a "completely different market" than Alstom's business that focuses on passenger transit, William Blair analyst Nick Heymann said in a research note.
Heymann said the idea "makes little strategic sense."
A source close to the talks said the comments from the French government underscored the fact that there was no real alternative to GE's offer.
"That's why the government is fretting so much, to twist the arm of the only one able to offer anything," the source said.
A second source close to the talks said GE's locomotive business is of little interest to Alstom, which believes it can be a strong standalone player in transport helped by the proceeds from the sale of its power business.
GE's rail signalling business may be more desirable to Alstom. In a letter to Hollande last week, Immelt said GE had decided to study with Alstom "the possibility of creating a joint venture with GE's global signalling business, along with a technological partnership." The letter was published by newspaper Les Echos and confirmed as authentic by GE.
Revenue in GE's transportation segment slumped 14 percent to $1.23 billion in the first quarter from a year earlier, hurt by a poor environment for the mining sector. GE reported overall quarterly revenue of $34.2 billion.
Shares in Alstom fell 2.2 percent, while GE shares were off 1.2 percent.