General Electric–Alstom: Another French “Victory” – Just Like Waterloo

 It was readily predictable back in April, when General Electric’s chief executive Jeffrey Immelt launched his $ 13.5 billion bid to acquire the energy business of France’s Alstom, that the beleaguered government of French President François Hollande would find a way to stumble and step all over itself.

So it has transpired. If Immelt waited to pop the champagne corks until his flight home after the result of his “revised” offer was announced on June 20, it was due only to a reluctance to gloat in public.

Because if the deal closes as reported, the scorecard will read this way:

• GE will bag its original target, Alstom’s gas turbine business, just as intended.

• GE will leave with Alstom its rail-signaling business – which GE did not want anyway – and agrees to negotiate joint ventures, of dubious future benefit and value, in steam turbines, renewable energy and electrical grid systems.

• Siemens of Germany, lured briefly by the French into a competing bid for the sake of French pride and cosmetic preservation of a European base for its large conglomerate, is relieved of over-paying to enter an awkward cross-border structure that would have been questionable both strategically and operationally.

• And as the wildcard – the French government will acquire the billionaire Bouygues family’s twenty-percent stake in the unwanted part of Alstom – effectively funding a dowry to protect what may remain of the honor of a bride just left jilted at the altar.

For comparison -- I was hit by pickpockets this spring, during the first week of my visit to Paris – in a careless and distracted moment in a busy public market. It took the light-fingered team only six minutes to get to the nearest ATM and loot my Euro bank account up to its daily limit. After many hours and dozens of calls and emails, the funds are recovered and the bank cards are replaced, with my ultimate loss limited to irreplaceable family photos, a prized wallet, and bruises on my limited supply of dignity.

President Hollande and Arnaud Montebourg, his economic minister, will not recover so quickly -- because the felonious opportunists who so disturbed my composure were rankest amateurs compared to Immelt. He comes away with exactly his aim going in, while improving GE’s competitive global position over Siemens, and into the bargain saddling the hapless French with a further burden on their treasury that Hollande can ill afford. Immelt’s negotiation persuasiveness ranks right up there with convincing the turkeys to vote in favor of Thanksgiving.

Having set up the people of France to become collectively Alstom’s largest shareholder – into the bargain being fleeced by the Bouygues group into paying a 25 percent premium above the market price for their Alstom shares -- and still exposed to further joint-venture dealings with the wily Immelt, Minister Montebourg was so skinned – and so unaware of his undressing -- as to issue the crowing, if clueless, proclamation that:

“This is a victory for Alstom, a success for France and an undeniable political success for the return in force of the state in the economy.”

Some “victory.”

The strategic value of “You bought it, you own it” will now play out for Montebourg. Recall that this is the very French leadership whose train operators have just confessed to paying out € 15 billion for new railroad trains, without anyone measuring to realize that some 1300 station platforms around the country are too narrow for the fancy new models, and who have stumbled intrusively into the protracted and contentious negotiations between US prosecutors and BNP Paribas over the size and terms of the French bank’s guilty-plea punishment for its criminal violations of the American prohibitions on dealings with Iran.

Immelt, silk purse in hand, has left Montebourg holding a sow’s ear – and the poor Gaul doesn’t even realize that it had been cleaned out and empty.

Failure to appreciate the cross-cultural differences in expectations is a characteristic cause of sub-optimal results in international transactions. The French display of misguided nationalism – for which their own M Chauvin contributes the aptly familiar appellation – will figure in the analysis. In future years the GE-Alstom deal will be studied in the classrooms of business schools spanning the Atlantic from Harvard and Wharton to INSEAD and HEC -- under the poker-players’ adage, “If you don’t know in the first twenty minutes at the table who the sucker is, then you’re it.” 

By which time, Messrs Hollande and Montebourg will have been hauled off into the political sunset – riding not in the Citroën limousines of officialdom, nor even on the scooter used by the former to visit his latest girlfriend, but in the tumbrels of ignominy, accompanied by the clacketing knitting needles of Mme Defarge. 

 

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Comments

[Joe Conneely]

There was a phrase I first heard in my public accounting days (have since learnt is probably Latin in origin). That phrase is "fish rot from the head" and what you have outlined is a great example of this in action.

Only time will tell if Immelt and his GE board actually get what they want from the deal. The EU is like an oil tanker, slow to turn but when it does make sure you are not standing in its way. The deeper malaise which France suffers as she enters the 21st century is the impact of the Grandes Ecoles where by getting all your top flight guys in any area (civil service, engineering etc.) going to the same premier schools and universities to get a good job on graduation, you build up an elite that ends up looking after its own members and interests and being too inward looking.

This is not to state that the US system of "Buy a senator or a Representative" is without its faults (the money spent by Wall Street lobbying Capitol Hill and the lack of any criminal prosecutions since 2007 speak volumes) but France's challenge I would suggest and as your posting outlines, is how to get new blood and ideas flowing into a system that is a result of intellectual inbreeding?