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GE purchase of Alstom energy firm not finalized

NEW YORK--General Electric inched closer to buying the energy-related businesses of France's Alstom by making a US$16.9 billion bid, but rival offers and the concerns of French politicians may hold up or scuttle the deal.

GE's bid, announced Wednesday, has been endorsed by Alstom's board, but the board will wait up to a month to formally accept or reject it. GE would obtain the parts of Alstom that make and service electric power generation and transmission equipment. Alstom would keep its transportation division, which makes high-speed trains.

GE values the acquisition at US$13.5 billion because it will acquire US$3.4 billion of Alstom's cash if the deal closes.

But the deal is far from done. France's government, which regularly intervenes in corporate decision making, has questioned whether selling Alstom to Fairfield, Connecticut-based GE threatens the country's energy independence and jobs. Alstom has formed a committee of independent board members to examine GE's proposal.

Officials in France had pressed for a delay to allow GE's German rival, Siemens, time to form its own bid. Siemens said in a statement Tuesday that it would make an offer if Alstom allowed it access to company data and allowed it to perform due diligence.

Alstom's board said it unanimously recognized the GE deal's strategic and industrial merits, and Alstom called the deal “practically perfect.”

GE CEO Jeff Immelt said in a conference call with investors Wednesday that Alstom first contacted GE about a deal in mid-February. He said the French company questioned whether it was large enough and geographically spread out enough to remain profitable over the long term in the global energy business.

The deal would put GE back into businesses it has abandoned, including equipment that generates electricity in hydroelectric plants and with steam in coal-fired and nuclear plants. That business is not expected to grow at all in Europe, but it could help GE grow in developing markets.

Heymann questioned whether Siemens has the cash to make a good offer to Alstom. It is already in talks to buy the power generation assets of Rolls-Royce, and credit agencies have suggested Siemens is at risk of a downgrade if its cash balance dips much further.

Siemens could offer Alstom a swap, though, sending its railroad division to Alstom in exchange for Alstom's energy business. That would likely be welcomed in France because it would bolster Alstom.

If GE prevails, though, finance chief Jeff Bornstein said GE would use US$9.5 billion of its own cash and borrow US$4 billion, to be paid back over five years, for the rest. The deal is expected to immediately begin adding to GE's earnings per share after it closes. GE said it would continue to pay and grow its dividend, but cut back on share buybacks and likely refrain from other acquisitions through next year.

GE expects to cut US$1.2 billion in annual costs after the deal closes. That usually involves closing factories and cutting jobs, just the kind of thing French politicians are concerned about.

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