“France has shown it can negotiate cleverly and openly with multinationals,” an official close to Hollande said of the decision announced defining the shape of a planned tie-up between Alstom and U.S. conglomerate General Electric.
“France’s international image was at stake ... We have shown we can stand up for our sovereign interests, as other countries do,” said the official, speaking on condition of anonymity.
It may be debatable what that image now is. But for prospective investors in France the Alstom saga has brought home one simple fact: in France, economic patriotism rules.
From the moment in late April that GE revealed its interest in the 86-year-old group that built France’s power grid and high-speed TGV trains, politics has never been far away.
The battle was fought as Hollande’s Socialists tried in vain to halt the rise in last month’s European Parliament elections of the far-right National Front, whose protectionist platform attracts voters bewildered by France’s economic decline.
The pace-setter in the race for Alstom has not been GE or its German rival Siemens but 51-year-old French economy minister Arnaud Montebourg, a loose cannon who makes no secret of his own presidential ambitions.
The future of Alstom is far from assured. Shareholder Bouygues agreed on Sunday to sell the French state a 20 percent stake in the French group as the government requested, but the exact shape of the GE-Alstom venture must still be defined.
Yet the accounts of participants in the closed-door talks interviewed by Reuters show how the GE-Alstom tie-up now taking shape was partly dictated by Montebourg’s push for an alliance in which French interests will be secured.
When Montebourg learnt through media reports over two days from April 24 to 25 that GE was planning some form of approach to Alstom, he could not contain his rage.
Only two months earlier when he held the more junior industry portfolio, he had dismissed as “hare-brained” suggestions that the government was worried about Alstom’s future after its shares plummeted on a profit warning due to weak order books.
Now, newly-promoted to the economics post in a government reshuffle, he looked embarrassingly out of the loop.
“We won’t let Alstom sell this national champion behind the back of its shareholders, its employees and the French government,” he fumed on his official Twitter account.
He further accused Alstom’s CEO Patrick Kron of “a breach of national ethics” for not keeping him informed of GE’s approach for its turbines and grid equipment business for price which sources put at $13 billion.
That sense of betrayal, according to several sources who dealt directly with the minister, was at the root of his preference for a tie-up offer from Siemens - a group whose acquisition advances Kron balked at a decade ago.
“For Montebourg this is personal. He’s out to get Kron,” said one of those sources.
It was Montebourg who on April 27 first officially revealed a Siemens plan he hoped would create two “European champions” with tie-ups in energy and transport to counter the U.S. offer.
Over the next week, he acted fast. He set much of the agenda for Hollande, whose unflattering nickname “Flanby” - a French brand of wobbly caramel custard - he owes to a Montebourg quip years earlier.
While Hollande played down the prospect of the French state purchasing a stake and urging an “industrial solution”, that was an option Montebourg never ruled out.
And when the president accepted an invitation by German Chancellor Angela Merkel to join her one weekend in May in her constituency of Ruegen, a windswept island on the Baltic coast, Montebourg had already laid the groundwork.
On the morning of May 9, Montebourg had met Siemens CEO Joe Kaeser in Paris before dashing to Berlin to meet his German counterpart Sigmar Gabriel, a fellow left-winger who is also vice-chancellor in Merkel’s grand coalition.
The timing was perfect. A day later on Ruegen, where Hollande was treated to a boat tour and a stroll along the pier under drizzly skies, Merkel confirmed her government would back a Siemens tie-up if it made industrial sense.
At home, political pressure for the government to show it was standing up for the interests of the 18,000 Alstom workers in France was growing.
The National Front’s Marine Le Pen had already accused the government of having “abandoned Alstom to be dismantled for American or German profit”. Even the mainstream opposition noted that conservative ex-president Nicolas Sarkozy had agreed a state rescue for the group a decade earlier to ward off Siemens.
It was then that Montebourg got out his nuclear weapon.
On the evening of May 14, Reuters was tipped off that something of interest would appear shortly after midnight in France’s Official Journal, the state gazette in which laws must be published to take effect.
It turned out to be a decree stating that any deal in the energy, water, transport, telecoms and health sectors would require the approval of the economy minister - a substantial strengthening of existing state powers on takeovers.
“With this decree, we’re armed to continue discussions and negotiations with the two companies that have expressed an interest,” a source close to Montebourg said.
The European Union’s internal market authorities warned of the risk of protectionism and said they were looking at whether it was compatible with EU treaties.
France’s main employer group Medef said it was a “bad idea” in a country already more closed than its peers to international merger and acquisition activity. According to Thomson Reuters data, only 37 percent of acquisitions of French companies have involved foreign groups since 2000, compared with 55 percent for Britain and 59 percent Germany over the same period.
But Montebourg was unrepentant, pointing out that other countries also had laws governing control of strategic industries while noting: “This is the end of laissez-faire.”
Alstom’s fate remained uncertain. Siemens had outlined a proposal to Alstom worth $14.5 billion, offering to exchange part of its rail business plus cash in exchange for Alstom’s power assets, but it had yet to make a formal offer.
Behind the scenes, Montebourg had started to sound out local industrialists about an all-French solution. “We have launched a study of Plan C,” he told Reuters on May 22.
“Plan A is GE, Plan B is Siemens, Plan C is a home-based solution,” he said of an option that would involve French capital, whether from privately-owned or state-owned companies.
In the end, Plan C did not fly. GE, meanwhile, had finalised its bid for Alstom at $16.9 billion, extended the offer deadline from June 2 to June 23 and went on a local charm offensive.
Clara Gaymard, the head of GE France and the wife of a former French finance minister, was using her well-stuffed political contacts book to lobby for the U.S. group.
CEO Jeff Immelt had already met Hollande in April to explain his plans and now, to the surprise of French lawmakers, said he was ready to submit to a grilling in parliament on May 27.
“Jeff is our CEO and he is running things,” said a GE spokesman. “He is in Paris anyway, so we decided he should attend. It’s normal that he should come and defend the project.”
At a late-night session, Immelt promised lawmakers to increase jobs in France and revealed he was in “constructive” talks with the government to secure French access to Alstom’s nuclear-related assets - a local concern.
The U.S. group launched a print ad campaign based on hand-drawn pictures of wind turbines with the caption “Tomorrow will be Made in France” - a play to win over public opinion while wooing Montebourg by picking up the same slogan he used for a “Buy French” campaign.
The end-game was nearing. On June 16, Siemens announced it had teamed up with Japan’s Mitsubishi Heavy Industries (MHI) to make an offer for Alstom’s turbines business involving $9.5 billion in cash and joint ventures.
Under the deal, Siemens would buy Alstom’s gas turbines business, MHI would buy stakes in Alstom power assets including grid and hydroelectric power equipment, and a venture would be formed to create a joint “European rail champion”.
But the government urged both bidders to do better. “The talks between the state and the different companies are going to continue this week,” a source in Hollande’s office said last Tuesday. “The offers must be improved.”
It set the stage for the frenzied last few days of the contest. GE turned its bid on Thursday from a pure purchase into an alliance involving joint ventures, a few hours before Siemens-Mitsubishi upped their cash component to $11 billion.
Speculation grew of a split between Hollande, said to back GE, and Montebourg, still seen to favor Siemens. A Thursday meeting of the two and other ministers produced no consensus.
One trade unionist said the minister had confided earlier in the week that he suspected Hollande backed the GE bid partly because he wanted to persuade U.S. authorities to ease penalties on French bank BNP Paribas for breaching U.S. trade sanctions between 2002-2009 - a link no French official has made publicly.
“Montebourg told us on Tuesday, ‘I have no idea what is going on inside the president’s head, or what he will decide. But I do know there is huge American pressure to choose GE’,” a delegate for the CGT trade union said.
Montebourg was denying local media reports of his resignation only a few hours before he announced on Friday afternoon that the government had chosen GE - with caveats.
If the deal goes ahead, the U.S. firm will walk away with Alstom’s gas turbines arm and its lucrative servicing contracts, but must negotiate joint ventures with Alstom in other fields.
Aside from the 20 percent stake the French state will take in Alstom, it will hold a “golden share” giving it veto rights over strategy of the nuclear joint venture. GE must create at least 1,000 new French jobs or face fines.
“This has shown that companies don’t have a free hand and the wider interest can still prevail,” said Dominique Gillier, general secretary of union CFDT’s metallurgy arm. “Montebourg managed to up the stakes and improve the bids. He can walk out of this with his head high.”
But another source close to the talks expressed distaste at the way the government handled the affair. “Alstom is a privately-held company. But the government is acting as if it were state-owned,” said the source. “It’s unbelievable. What message does this send the world?”
Still others point out that this should come as little surprise given the interventionist record of French leaders regardless of their political color.
Montebourg failed last year to keep open blast furnaces in eastern France which steel group ArcelorMittal wanted to shut down, threatening at one point to nationalize them.
A conservative government’s decision in 2005 to name French dairy group Danone a company of strategic importance - shielding it from a feared takeover by U.S. drink-maker PepsiCo - is now regarded as a classic example of “economic patriotism”.
Russell Solomon, senior vice president and lead GE analyst at Moody’s credit ratings agency, said the saga was “indicative of the protectionist type of environment you have to deal with when doing business in France”.
“With that said, GE has been ... very familiar with the business practices and the regulatory environment in Europe generally and France in particular. The implication is that they know what needs to be done.” (Reuters)