France Outfoxes America in the M&A Sale of the Century

(Bloomberg Opinion) -- The business media tends to focus on the swashbuckling bosses that pull off transformational deals, not the ones who dismember former national champions. Yet the history books should look kindly on Patrick Kron, the former chief executive of French industrial giant Alstom SA.

In 2014, Kron agreed to sell most of the company’s energy activities in a $10 billion deal with General Electric Co. of the U.S., leaving Alstom a much smaller company focused on building trains. At the time, he was pilloried by some French politicians and newspapers for selling a national treasure to the Americans; Alstom’s energy assets contributed about 70 percent of its revenues.

Even today, France remains preoccupied by claims that the U.S. strong-armed Alstom into a deal, using corruption cases hanging over the company as leverage – something Kron has denied. Rather than looking for ways to castigate the former boss (he resigned in 2016), its owners and employees should be awfully glad that Kron did sell up.

On Tuesday, the French company announced a 5.5 euro special dividend, to return some of a further 2.6 billions euros ($2.9 billion) in proceeds that Alstom received last year for selling its remaining interest in three energy joint ventures with GE. It had already used the initial deal proceeds to fund a 3.2 billion euro share buyback and to pay down debt, leaving its balance sheet in much better shape. Even after distributing 1.2 billion euros in dividends, the company will have about 1.1 billion euros in net cash.  

Though a proposed train merger with Germany’s Siemens AG was blocked by Europe’s competition authorities in February, Alstom looks pretty well set. It booked 12 billion euros of new orders last year, an increase of more than two-thirds.

And GE? My colleague Brooke Sutherland has written extensively on what a disaster the Alstom deal was for the U.S. conglomerate. With demand for gas turbines collapsing, GE announced an epic $23 billion writedown in October, most of which related to the Alstom deal.

It’s not as if French workers have suffered particularly after moving to GE’s ownership; they’ve been shielded from job cuts thanks to guarantees that Kron agreed as part of the sale. GE did end up creating far fewer jobs than it promised, but the French government at least managed to extract a fine for that.

“Steam turbine manufacturing was not a French national treasure, far from it,” says James Moore at research firm Redburn. “History has shown it was a walking Kodak, a dying, dirty, inefficient industry being eaten by renewables... It was a brilliant maneuver by Patrick Kron.”

If Alstom hadn’t sold to GE, it would almost certainly not be in a position to pay big dividends today, and would be under immense pressure to slash jobs, as Siemens has been forced to do in its own power and gas division.

Apropos Siemens, back in 2014 it joined up with Japan’s Mitsubishi Heavy Industries Ltd. to table a counterbid for Alstom’s energy assets. When GE won the day, Siemens claimed it had at least forced the Americans to offer more concessions, whereas it had remained disciplined. For Siemens too, that was a lucky escape.

That figure is prior to the impact of IFRS 16 accounting changes

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.

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