UPDATE 2-Alstom-Schneider drop condition on T&D bid-source

* French bidders remove 400 mln euro clause for Areva T&D

* Clause was tying deal price to T&D's operating performance

* Dropping clause could enhance French bid

* GE, Toshiba also adjust offers, source

* Government studying all three offers, no preferred bid now

(adds more details from source, background, GE, unions)

By Anna Willard and Leila Abboud

PARIS, Nov 24 (Reuters) - Alstom and Schneider Electric have dropped a condition from a joint offer for Areva's T&D, which would have tied payment of 400 million euros of the bid price to the unit's performance, a French government source told Reuters.

The sale of the power transmission and distribution unit is a key part of an 11-billion-euro ($16.40 billion) financing plan to boost Areva's global expansion as more countries launch or are considering nuclear power projects.

The move would be a way for the French duo to make their offer more attractive, countering criticism from rival bidders GE (GE.N) and Toshiba (6502.T) that the French offer fell short on price and imposed more conditions than the foreign buyers.

Dropping the clause could also strengthen the bid in the eyes of the state, which owns 91 percent of Areva and is keen to keep its most-profitable unit in domestic hands. [ID:nLK630671]

"We asked all three to improve their offers and all of them did," said the government source, who asked not to be named.

Asked whether Alstom (ALSO.PA) and Schneider (SCHN.PA) had dropped the 400 million-euro price condition to their bid, the source said: "Yes." The source also confirmed on Tuesday the French bid was around 4 billion euros, Toshiba's was 4.2 billion euros, and GE's was about 4 billion euros.

Asked whether there was a preferred candidate at this stage, the source said there was no front-runner. "For now, we are looking at the offers."

A spokesman for Schneider Electric declined to comment on whether the French consortium had revised its offer. An Alstom spokesman also declined to comment immediately on the question.

MONDAY DEADLINE

All three bidders appeared on Monday before a government committee known as the French Government Shareholding Agency, which is charged with advising the state on how to manage its stakes in French companies and maximise their value.

At that time, Alstom-Schneider dropped the variable-pricing clause, according to two sources close to the situation.

GE and Toshiba both also made adjustments to the financial structure and accounting aspects of their offers to make them more attractive to Areva and the government, according to a source close to situation.

For example, GE created a "exit premium" that would transfer 100 million euros of cash from T&D's balance sheet up to the parent company Areva, the person said, something that was not in the inital offer. "It's a smart way for GE to raise the cash portion that goes up to Areva without modifying the price on its offer," said the source.

Areva (CEPFi.PA) was expected to winnow the field of three bidders down to two on Monday, but that has not happened, said another source close to the situation. [ID:nLJ437212] "We were expecting a rapid outcome at the start of the week but now we have no more visibility on an announcement," the source said.

Areva said in June it would sell the T&D business to fund its expansion plan. The plan also includes a capital increase, which will be offered only to strategic and industrial partners of Areva, and not on the stock market.

The auction, which has been marked by intense lobbying on the part of the bidders in the press, could be resolved by Dec. 9 when the bids expire, two sources have told Reuters.

To counter the perceived advantage of the French bid, the foreign bidders have made promises to protect local jobs and keep T&D's headquarters in France. In a statement on Monday GE cast its bid as the "most French offer" and promised to "create a world champion based in France."

In an opinion piece in Tuesday's Les Echos newspaper, Alstom CEO Patrick Kron and Schneider Electric CEO Jean-Paul Tricoire cast their bid as good for Areva T&D workers, as well as for the European energy sector. "We have made strong and clear commitments to workers at T&D," they wrote.

The French bidders want to chop the T&D business in half -- with Alstom running the transmission and Schneider the distribution. The proposal has been opposed by unions and Areva T&D's own managers, who argue that it will hobble the business and lead to job cuts.

"The only solution that make sense from a social and an industrial point of view is to keep the T&D unit within Areva," wrote one of Areva's labour unions in a statement on Tuesday. "We are determined to fight to the end for T&D not to be sold."

Areva T&D employs 31,000 people, with 5,500 in France. It hails back to AEG in Germany and Britain's GEC as was part of Alstom until this company was forced bu the European Commission to sell the activities as part of conditions to a state-orchestrated financial bail-out.

(Additional reporting by Nina Sovich and Benjamin Mallet; Editing by Marie Maitre and Marcel Michelson)

((leila.abboud@thomsonreuters.com; + 33 1 49 49 51 82; Reuters Messaging: leila.abboud.thomsonreuters.com@reuters.net)) ($1=.6708 Euro)