European Commission’s objections to GE/Alstom deal may come today

My previous posts about the GE/Alstom deal are here:


UPDATE2! The EC has apparently sent its statement of objections to GE:

WSJ: The European Commission, the EU’s top antitrust regulator, said it had sent a so-called statement of objections to the U.S. industrial company on Friday.

UPDATE! Reuters reports that Alstom has reacted to the press articles today and said that they will continue to provide evidence to the EC about the positive aspects of the deal for Europe. About the “statement of objections” they said “There have been press comments that a ‘statement of objections’ would be issued by the European Commission associated with the investigation of the sale of Alstom’s Energy businesses to General Electric. This is a usual step in a phase II merger case and it does not prejudge the outcome of the investigation. It will allow both General Electric and Alstom to address specific matters pointed out by the investigating team.”


The EC are playing hardball and seem to be looking for substantial concessions from GE before approving GE’s acquisition of Alstom’s power and grid businesses. According to Reuters a statement of their objections could come today (12th June).

ReutersGeneral Electric Co may need to offer bigger concessions to win European Union approval for its purchase of Alstom SA’s power unit as regulators plan to warn the U.S. company that the deal would harm competition, two people familiar with the matter said on Thursday.

….. “A statement of objections could come on Friday,” one source said.

Such a document shows why the EU regulator views the deal as anti-competitive and is a prelude to a veto unless companies come up with strong arguments or significant concessions.

Alstom shares fell 3.2 percent following the Reuters story, while GE was down 0.3 percent. An EC spokesman declined to comment. Alstom had no immediate comment. GE said it was working constructively with the regulator.  “We are focused on a positive outcome that preserves the deal economics,” GE said, adding it was confident of closing the transaction in the second half of 2015.

As I have written before, I expect that the EC objections are centred around what will happen with Alstom’s Heavy Duty Gas Turbine (HDGT) technology and service business. GE has no immediate need for Alstom’s sequential combustion technology, though, in the long run, GE may be the best placed to utilise that technology to take gas turbines to new heights. Regarding the service business for gas turbines it is very rarely, and only for older machines, that a party other than the OEM can provide the most critical spares. So such spares for the Alstom machines would come in the future from GE instead of Alstom but it would be no real change to the competitive position. (For the critical, “noble” parts of any not-too-old gas turbine, the OEM has a virtual monopoly).

However what the EC may be struggling with is that

  1. insisting on Alstom selling the HDGT business to someone other than GE will not find any competent buyers and certainly not any price close to what GE would pay, or
  2. asking GE (or Alstom) to sell sequential combustion technology to a 3rd party could only find buyers a long way down the learning curve who would need deep pockets and maybe 5 years to bring themselves up to any kind  of competitive position, or
  3. asking GE to either commit to use the sequential combustion technology themselves but where GE would probably want to discontinue the Alstom machines quickly, or
  4. to make the technology  “generally available” (as some kind of open source technology) for other potential competitors which would also require that GE give up the service business for some of Alstom’s biggest engines (say the machines operating in Europe) so that they could be available as a “training ground” for any technology user trying to make a go of it (for example; Ansaldo/Shanghai, MHPS, Harbin, Bhel, Kawasaki Heavy ……)

None of these options would be easy to implement. Option 1, I think, will not fly. Option 4 is probably beyond GE’s walk-away point since the heart of their business plan – the service revenues – would be impaired. Some variation of Options 2 and or 3 and parts of 4 maybe will not chase GE away.

The EC is due to announce its decision by early August, and since the EC is in regular discussions with GE, it does look like there is a negotiation ongoing (even if it cannot ever be acknowledged to be a negotiation by either party). I suspect Alstom has no great part to play in this negotiation. The French government probably can not be seen to be involved, but they are certainly not happy with the EC and its objections. (Of course, it is inconceivable for the French government that the EC could possibly go against “French interests”).

The statement of the EC’s objections – if it comes out today – should give a good indication whether this deal is going to go through or will eventually die. But killing the deal is not really in Europe’s interests, so the EC will have to tread very carefully.

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