* Lowers value of Alstom stake by 31 pct
* Move raises questions over future of holding
* Alstom shares down 37 pct in past 12 months
* Train and turbine maker has cut cash flow targets
* Bouygues has said it's keeping options open on stake
(Adds government concern, Alstom comment)
By Natalie Huet
PARIS, Feb 17 French conglomerate Bouygues
will write down the value of its stake in train and
turbine maker Alstom by 1.4 billion euros ($1.9
billion) to reflect its weaker cash flow forecasts and depressed
The move cuts the stake's value in Bouygues' balance sheet
by about 31 percent to 3.08 billion euros. It will appear in
fourth-quarter financial statements and will have no impact on
Bouygues' cash position or operating performance, the
construction-to-telecoms conglomerate said on Monday.
Alstom cut its forecasts for free cash flow and operating
profitability last month because of weak orders for power
equipment, raising the spectre of a dividend cut and sending its
Alstom's woes have sparked concern within the French
government, which hired consultants several months ago to study
the group's position in its different markets and strategic
options, according to a report on Les Echos website on Tuesday.
"Alstom is not on the brink, but the company needs to make
strategic decisions for its future," a government source told
les Echos. Options could include deals or the state taking a
stake in Alstom via a capital increase.
A spokeswoman for Alstom declined to comment on the report,
but said a capital increase was not on the table.
A spokeswoman for France's industry minister also declined
Bouygues pumped 2 billion euros into Alstom in 2006 when it
took over a 21 percent stake that the French government had
acquired to rescue Alstom from near-bankruptcy a decade ago.
Bouygues then gradually raised its stake to the 29.4 percent
stake it now holds.
As Europe's economic weakness has deepened, Alstom has
struggled with lower demand for the huge turbines and other
components it supplies to coal and gas-fired power stations. The
train business has held up better and secured record orders.
The dearth of turbine orders has punched a hole in Alstom's
balance sheet and brought its debt within a notch of "junk"
ratings. To raise cash, Alstom has put up for sale a minority
stake in its transport division, which makes France's prized
high-speed TGV trains.
Analyst said a writedown was expected given the slump of
more than 37 percent in Alstom's shares in the past 12 months.
Before the writedown, Bouygues valued its 29 percent stake
at 4.4 billion euros, or about 67 percent of Alstom's current
market capitalisation. The writedown brings that to 46 percent.
"It's still a little rich, but I guess they're taking a view
that over the longer term cash flow will recover and so will
valuation," said Nomura analyst Daniel Cunliffe.
"The real question is whether Bouygues will be happy with a
dividend cut, which I think is inevitable, and whether this is a
writedown in preparation of a sale."
Bouygues declined to comment on whether it might be
preparing to offload its stake.
Espirito Santo analyst Rob Virdee said he could not imagine
Bouygues selling up any time soon. "I don't think they are very
happy about where Alstom is at the moment, but my feeling is
that when you've invested so much already, it's very hard to
walk away," Virdee said.
He noted Alstom had tried hard lately to appease its main
shareholder, refraining from cutting its dividend and pursuing
non-strategic asset disposals rather than raising fresh equity.
In November, Bouygues said it was keeping its options open
regarding the stake, but welcomed Alstom's planned
restructuring, which involves 1,300 job cuts and up to 2 billion
euros in asset sales.
Bouygues Chief Financial Officer Philippe Marien told
analysts at the time that Bouygues was "not rigid" with its
investment in Alstom and would look at how the market and
Alstom's business evolve to make a decision in the longer run.
Bouygues shares closed down 0.8 percent to 29.99 euros,
while Alstom's closed 0.2 percent higher to 20.97 euros.
Bouygues will release its annual results on Feb. 26.
($1 = 0.7307 euros)
(Additional reporting by Gwenaelle Barzic and Gilles Guillaume;
editing by Andrew Callus, Tom Pfeiffer and David Evans)