France said it would defend jobs and its national interest as it met suitors eyeing a breakup of engineering group Alstom on Monday and suggested it preferred Germany's Siemens over U.S. giant General Electric (NYSE:GE).
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President Francois Hollande held talks with GE boss Jeff Immelt on Monday morning and sat down later with Siemens CEO Joe Kaeser to discuss the fate of Alstom, the maker of the country's prestigious TGV high-speed trains and turbines for power plants.
"We won't let Alstom sell this national champion behind the back of its shareholders, its employees and the French government," Economy Minister Arnaud Montebourg wrote on his official Twitter account before the meetings started, accusing Alstom's CEO Patrick Kron of "a breach of national ethics".
Alstom, which is battling with big debts and falling demand, was bailed out by the French government in 2004 but now needs help again. Smaller than its suitors, it was hardest hit by a slump in orders for power equipment since the 2008 economic downturn depressed electricity prices.
Monday's meetings follow a weekend of drama when Alstom's German rival Siemens proposed exchanging part of its train business plus cash for Alstom's power arm to counter a potential Alstom-GE energy tie-up. Montebourg said the Siemens plan would create "two European and global champions".
Berlin weighed in on Monday morning, saying an Alstom-Siemens deal could offer "great opportunities" for Franco-German cooperation.
Siemens also re-confirmed its interest in an Alstom deal.
After GE CEO Immelt emerged from talks at the presidential palace late on Monday morning, the company issued a statement calling the dialogue "open, friendly and productive".
"It was important to hear in person President Hollande's perspective and to discuss our plans ... We understand and value his perspective, and are committed to work together," it said.
Hollande and Montebourg have said their concerns are related to jobs, the nation's energy independence, and the location of activities both in power and rail. A source familiar with the discussions said GE had offered some solutions to these concerns but that there was still a lot of work to do.
Montebourg said before the meeting with GE that France would oppose any deal it considered unsuitable. But the minister, who has threatened in the past to nationalise assets belonging to steelmaker ArcelorMittal, stopped short of suggesting the state would do the same for Alstom.
"It's too early to raise that question," he said.
In the evening, Hollande met with Kaeser from Siemens and with Martin Bouygues, the billionaire chairman of family conglomerate Bouygues, which is Alstom's largest shareholder, with a 29.4 percent stake.
Kaeser later issued a statement that he had had a "very open, trustful and amicable exchange" with Hollande and Montebourg, and the Siemens board would convene as soon as possible to decide whether to make an offer.
Immelt arrived in Paris during the weekend, aiming to hammer out a $13 billion deal to buy Alstom's power turbines business. News of talks between the two surfaced last week, and sources with knowledge of them say they have been going on for months and are very advanced.
However, Siemens may also be working on refining its proposal, a second source with knowledge of the talks said.
"It is clear that Siemens wants to remain in the race. They could come back with a more binding offer or with another, more detailed letter addressing some of the issues pointed out in the press, such as antitrust and jobs."
A third source said it should confirm its offer on Tuesday.
Analysts see sense in an Alstom-GE tie-up. GE is relatively weak in turbines for nuclear and coal power generation, where Alstom is strong, and the French group's established base of power installations generated 70 percent of its global revenue in the last year. A deal would also enable GE to expand into offshore wind power and grid technology.
Such a beefed-up GE would be a tough competitor for Siemens, hence its counter-attack, say industry sources.
Citi analysts estimate that combined with Alstom, Siemens could account for 50 percent of the world's installed power capacity, well ahead of GE's 25-28 percent.
GE has struck 50 deals worth more than $125 billion that have been approved by the EU in the past decade. That includes the acquisition of French motor maker Converteam for about $3 billion in 2011.
Siemens, like Alstom, makes high-speed trains and other rolling stock as well as power station turbines, and according to sources familiar with its plan is proposing an asset swap that would make Alstom a more significant rail transport player while enhancing its own turbines and power grid equipment business.
Its proposal also offers Alstom some cash, and puts an enterprise value of around 10 to 11 billion euros ($14-$15 billion) on Alstom's power arm.
Sources close to the talks said that at this stage, the cash in GE's offer was more attractive to Alstom's top shareholder Bouygues, and would also help Alstom finance strategic acquisitions to grow as a pure player in transport.
"Meanwhile, Siemens wants to offload a declining business that's partly redundant with Alstom's - that's not very attractive," one of the sources said.
A deal with Siemens - an option floated a decade ago but rejected by both Alstom's CEO Kron and then-president Nicolas Sarkozy - could be more complicated to carry out, due to more overlap and antitrust issues than with GE, the sources said.
Alstom's unions warned a Siemens tie-up would mean big layoffs at both companies. Alstom employs 18,000 people in France, about 20 percent of its total workforce, against GE's 10,000 French workers and 7,000 for Siemens.
"Why not a Franco-French solution? Can't the French state intervene directly by partly taking over the stake Bouygues holds?" the CFE-CGC union said in a statement.
The CGT union meanwhile called for Alstom's nationalisation. Labour Minister Francois Rebsamen, asked about this option, told France Inter radio: "I think nothing is out of the question at the moment."
Beyond Monday's brief statement, GE declined to comment. Bouygues has limited itself to saying it supports Alstom's strategy. Siemens said on Sunday it had written to Alstom about strategic opportunities.
Siemens has hired Societe Generale and BNP Paribas to help it on a possible deal swap with Alstom, according to sources with knowledge of the situation who declined to be named.
Rothschild and Bank of America Merrill Lynch are advising Alstom on the deal, while GE is working with Lazard and Credit Suisse, the sources said. BNP and Societe Generale declined to comment; the other banks were not immediately available for comment.
Alstom's shares are suspended from trading until Wednesday while it considers its options. The shares, which had slumped earlier this month to a near nine-year low, jumped at the end of last week to reach their highest in five months.
($1 = 0.7227 Euros)
(By Natalie Huet and Benjamin Mallet; Additional reporting by Elizabeth Pineau, Nicolas Vinocur, Matthieu Protard and Julien Ponthus in Paris, Arno Schuetze in Frankfurt and Sophie Sassard and Anjuli Davies in London; Editing by Sophie Walker and Will Waterman)