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Government to Buy Stake in French Industrial Firm From Bouygues

PARIS—The French government has reached an agreement to purchase a stake in Alstom from its leading shareholder, Economy Minister Arnaud Montebourg said Sunday, clearing the way for General Electric Co. GE +0.15% to complete its acquisition of most of the French industrial company.

The accord—hashed out in marathon talks between the government and French conglomerate Bouygues grants the government an option to buy a 20% stake in Alstom from Bouygues at a future date, Mr. Montebourg said.

"We reached an agreement with Bouygues," Mr. Montebourg said.

Bouygues, whose businesses range from construction to telecommunications, confirmed the agreement in a statement, adding that the government's option to purchase the Alstom shares will last for 20 months and begin after the GE-Alstom deal closes.

Mr. Montebourg added that Paris would move to purchase the stake when Alstom shares are trading at their "lowest" levels on the stock market. The government's decision to buy the stake at a future date marks a concession. The government vowed Friday evening to buy the stake before GE closed the deal with Alstom, but Bouygues balked at that proposal.

- Says: "Once there is significant growth, of more than 2%, a rate reversal can happen, but from today's perspective that will hardly be before 2016."

Alstom has chosen unanimously to offer the American General Electric to resume its activities in energy. The government has negotiated the terms of the acquisition of 20% stake in Alstom to Bouygues.

The last obstacle to the resumption of Energy Alstom by the American General Electric (GE) was lifted Sunday afternoon after a weekend of intense negotiations: the state has reached an agreement on the conditions of redemption 20% stake in Alstom, Bouygues, today major shareholder (29.4%) of the French supplier. "It is for the government prior to any form of government approval to the proposed partnership," warned Friday night, the Minister of Economy in a letter to the CEO of the American group, Jeffrey Immelt. Arnaud Montebourg formalized the agreement "20 hours" of France 2 tonight.

Who does not want to sell off its stake included 34 euros per share in its accounts Bouygues, has assured that the state could acquire the 20% over 35 euros for twenty months after the closing of the transaction, in the first half Bouygues 2015. "considers that the title Alstom worth 35 euros. We give him twenty months to prove, "says one at Bercy. Friday, Alstom during closed at 28 euros. In the meantime, the State may acquire securities in the market, and Bouygues him "ready" for free 20% of the voting rights. The State will also be two directors to the board of Alstom. To finance the operation (1.7 billion euros during Friday), the State believes it does not need to sell other investments. Arnaud Montebourg however, said on France 2 tonight that the State proceeded to management "dynamic" of its portfolio, which includes 71 investments worth some € 110 billion. All stakeholders have an interest in reaching an agreement before the opening of trading on Monday morning.

 

 

Surprise Friday

The Minister of Economy had a surprise Friday night, announcing the will of the State to carry out a partial nationalization of Alstom and clearly positioning the supply of U.S.. It is however opposed to a competing proposal prompted by the government, from the Japanese Mitsubishi Heavy Industry and German Siemens. To counter the initial offer of GE, which was a simple purchase of the energy branch of the French equipment for an amount of € 12.35 billion, the duo had proposed a complex scheme based on joint ventures and meet government requirements, very attached to a "partnership". A scheme which the American eventually largely inspired, to meet the requirements of the executive. "If we had two offers at the same time, they were worth," says Will in the entourage of the Head of State.

The executive is finally showed pragmatic. Initiated with an edge, negotiations with GE had the merit of having the support of leaders of Alstom and its board of directors. Having obtained that GE brings significant changes to its offer, it can also boast of having shown "patriotic vigilance" and welcome the way the case was handled. "We were very professional on this matter," said Will in the entourage of the Head of State.

Closure next year

Remains in the end, GE resume well a large part of energy activities of Alstom, for a net cash investment of € 7.3 billion. Alstom will hold 50% of certain activities in the energy, which will benefit from synergies and cooperation with GE, but no longer appear in its consolidated financial statements (see also below). "The industrial logic is unchanged. Alstom will rely on a solid group, with real financial clout "says Patrick Kron, CEO of Alstom.

The closing of the transaction will still take many months: given the multiple consultations and perform authorizations required (. Representative bodies, competition authorities, etc.), Alstom provides that the extraordinary general meeting will not be held before the fall, to loop next year. "I will lead through this ambitious, offensive and not defensive project," says Patrick Kron. The CEO, however, should then give his chair, comme il l’a déjà laissé entendre à plusieurs reprises.

France claims victory in forcing GE to revise its Alstom energy bid

Operations At Alstom SA's Power Station Turbine Plant As Takeover Battle Intensifies...Bloomberg Photo Service 'Best of the Week': An employee uses a caliper micrometer to measure a section of a turbine at Alstom SA's power plant turbine refurbishment facility in Rugby, U.K, on Tuesday, April 29, 2014. The battle for Alstom intensified after Siemens AG stepped up plans for a bid to counter General Electric Co. (GE) in what would be the biggest tug of war for a French industrial company ever. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

Siemens is bidding €3.9bn for Alstom’s gas turbines business as part of an offer that is more complex than GE’s but one designed to win over the Alstom board with promises of co-operation

France’s socialist government has claimed a resounding victory for state intervention after forcing General Electric to significantly revise its $16.9bn takeover deal for Alstom’s energy businesses, which both companies approved at the weekend.

The government announced on Sunday night it had agreed terms with the French conglomerate Bouygues for its purchase of a 20 per cent state stake in Alstom, worth about €1.7bn at prevailing market prices. The government insisted on acquiring the stake as a condition of accepting the GE deal.

Arnaud Montebourg, economy and industry minister, said Alstom would have “disappeared” if the state had not stepped in to halt GE’s initial bid in April, following up later by taking powers that gave it a veto over a wide range of industrial takeovers.

“Entering the capital of Alstom will assure the alliance is properly respected, including the number of employees. There will be no knockdown sale of our interests,” Mr Montebourg said in an interview with Le Parisien newspaper.

Alstom and GE boards both unanimously approved the revised terms offered by the US company after months of wrangling with the government. The deal was backed by Paris over a rival joint offer by Siemens of Germany and Japan’s Mitsubishi Heavy Industries.

Well, we have no reason to further push what is not being appreciated

- Joe Kaeser, Siemens chief executive

Siemens and MHI accepted the government’s decision in favour of GE on Friday evening. In a letter to staff, Joe Kaeser, Siemens chief executive, complained bitterly that Patrick Kron, Alstom’s chief executive, had been “determined to prevent Siemens’ involvement at all costs from a very early stage”.

Mr Kaeser said the Siemens-MHI bid was worth €2.3bn more than GE’s offer. “Well, we have no reason to further push what is not being appreciated.”

Under the GE deal, the biggest ever industrial acquisition by the US company, it will take over Alstom’s global gas turbine operations, the biggest part of the French company’s business.

In the main revised elements of the agreement, it will enter 50-50 joint ventures with Alstom in the French group’s power grid, renewable and nuclear turbine operations.

The French state will have a “golden share” in the nuclear unit, as well as assured rights over its technology. The government will impose penalties on GE if it does not meet promises to add 1,000 new jobs in France over the next three years.

GE also agreed to sell its signalling business to Alstom to boost the latter’s remaining transport business, which the government feared would lack critical mass as a standalone company.

The revised bid put a value of $3.5bn (€2.6bn) on the stakes the French group will own in the three businesses that will be joint ventures with GE, meaning that the net cash cost of the deal to the US group will be $10bn.

Manuel Valls, the reformist prime minister, said: “Alstom would today be in the hands of GE without conditions if we had not intervened.”

Mr Kron, Alstom chief executive, said they hoped to close the deal, which will be submitted to competition authorities, early next year.

A handful of Wall Street firms are much more vulnerable than their peers to a type of bank run seen during the financial crisis. Unfortunately for investors, the identity of these firms is a mystery.

One lesson from the financial crisis was that a little known but important source of funding, the repo market, can freeze up in times of stress. That is because cash investors, such as money-market funds, can suddenly stop making the short-term loans collateralized by securities, known as repurchase agreements, or repos, that help finance Wall Street's securities portfolios. The shorter the maturity of a firm's repo financing arrangements, the quicker they can come due and the more vulnerable it is to a repo run.

That is why the repo market, and reducing firms' reliance on it, has come into focus with regulators. Officials such as Federal Reserve governor Daniel Tarullo, the central bank's point person on regulation, have repeatedly spoken of the need for overhauls of this market, along with that of money-market funds.

Against that backdrop, a new study by the Federal Reserve Bank of New York of repo financing for riskier, less-liquid assets, such as corporate bonds, offers some potentially encouraging news. It found that Wall Street as a whole appears less vulnerable to repo runs. The average maturity of these trades, weighted by the value of collateral, was nearly 80 days in the first quarter, up from just 40 days in 2011.

But not all firms are so well placed. At a quarter of the 15 firms with the largest positions in this market, the weighted-average maturity was 26 days or less, according to the Fed researchers.

So which firms are the weakest in this regard? That's the rub: The New York Fed study used confidential information that investors can't access. And because most firms don't disclose the maturity of their repo trades, there is no way to tell which is most vulnerable to a repo run. Citigroup, C -0.46% Morgan Stanley MS -0.77% and Goldman Sachs Group GS +0.06% are the exceptions: Each discloses that its risk assets have secured financing with a weighted average maturity of more than 100 days. For the rest of Wall Street, the weakness detected by the Fed is cloaked in opacity.

It isn't as if this is a trivial matter: Repo runs played a role in the demise of Bear Stearns and Lehman Brothers. So the extent of a firm's vulnerability to such a scenario shouldn't be kept hidden. What's more, these known unknowns can become dangerous if markets come under stress. Another lesson from the crisis is that when markets suspect that some financial institutions are critically weak but can't identify which ones, liquidity dries up for everyone.

Hopefully, this study is a sign that regulators, who have made clear that the repo market can contribute to systemic risk, are moving toward requiring greater transparency. An added benefit: Banks made to disclose repo vulnerability would likely move to reduce it. It is time to shed light on the repo market's darkness.

The President Is Concerned Destabilization Caused by ISIS Could Spill Over To Allies like Jordan

President Barack Obama warned in an interview broadcast Sunday that the group known as the Islamic State of Iraq and al-Sham could destabilize the region and someday threaten the U.S.

In an interview on CBS's CBS -2.20% "Face the Nation,'' the president said there are "a lot of groups out there that have more advanced, immediate plans against the United States,'' but said the U.S. will have to be vigilant.

"Right now the problem with ISIS is the fact that they're destabilizing the country—that could spill over into some of our allies like Jordan, and that they're engaged in wars in Syria where, in the vacuum that's been created, they could amass more arms, more resources,'' Mr. Obama said.

"ISIS is just one of a number of organizations that we have to stay focused on,'' Mr. Obama said, citing other groups like the Yemen branch of al Qaeda and Boko Haram in Nigeria.

"What we can't do is think that we're just going to play Whac-A-Mole and send U.S. troops occupying various countries wherever these organizations pop up,'' he said. "We're going to have to have a more focused, more targeted strategy and we're going to have to partner and train local law enforcement and military to do their jobs as well.''

The head of the Senate intelligence committee, Sen. Dianne Feinstein (D., Calif.) was more grim in discussing ISIS on NBC's "Meet the Press.''

She said that as radicals in Iraq score military victories, the country could become a future threat to the U.S.

"There will be plots to kill Americans,'' she predicted. Rebels from ISIS, she said, "are vicious, they have killed thousands of people. and they do want to develop the caliphate''—an Islamic religious state—throughout the region.

Asked if U.S. intelligence agencies saw this situation coming, Sen. Feinstein answered, "I would have to say no."

For the ECB, QE just won't RIP.

If the European Central Bank hoped its raft of actions in June would quell the debate around quantitative easing, it must be disappointed. The International Monetary Fund has renewed its call for the ECB to be ready to undertake asset purchases if needed. This underlines a looming challenge for the ECB, even if the IMF's faith in the power of QE looks misplaced.

The IMF welcomed the ECB's actions to cut rates, provide liquidity and boost corporate lending. But it argued that if inflation remained low, the ECB should be prepared to buy government bonds on a large scale, increasing the size of its balance sheet. "This would boost confidence, improve corporate and household balance sheets, and stimulate bank lending," the IMF said.

That represents the orthodox line on QE, which makes it worth questioning.

The main channel for bolstering confidence is through boosting asset prices. The first dose of bond purchases by the Federal Reserve clearly provided a vital lift to confidence in this way.

But euro-zone bond and stock prices already have risen sharply since ECB President Mario Draghi pledged in 2012 to do "whatever it takes" to save the euro. There are concerns about the effects of QE on financial stability.

Second, while higher asset prices might help lenders feel more confident and reduce borrowing costs, it isn't clear they would directly feed through to an improvement in corporate and household balance sheets. The IMF itself notes that sovereign- and corporate-bond yields are at historical lows "in many countries." Many Europeans don't have direct exposure to financial markets; there might not be a particular effect on households at all.

Finally, it isn't clear that QE would necessarily boost bank lending. This has been a constant complaint in the U.K. and U.S. This may reflect both credit supply and demand problems: Banks are being forced by regulators to become safer; consumers and companies could be reluctant to borrow. Both are likely in the euro zone, where the process of cleaning up bank balance sheets has been slower than elsewhere.

But the IMF's recommendation still points to a problem for the ECB. The debate about QE seems unlikely to go away. The central bank, therefore, needs to keep QE on the table as a possibility, without making the market believe that it is certain. A certain level of ambiguity is required. The current tactic, used by executive board member Benoît Coeuré in his response to the IMF's call Friday, is to say QE is possible but unnecessary now.

That may work for some time. But if the clamor for QE becomes louder, it may not satisfy investors who are aware the ECB faces practical problems in buying government bonds, given the fragmented nature of euro-zone markets and the political stink it might cause. The IMF's promotion of QE only complicates the ECB's balancing act.

New Growth Measures Chip Around the Edges of Nation's Economic Foundations

TOKYO—Prime Minister Shinzo Abe has made strides over the past year to end Japan's long bout of debilitating deflation. He'll announce still more measures this week designed to stir economic growth.

In that, he faces a fundamental choice: Is Japan willing to shake up long-standing customs and business practices to achieve growth on par with the U.S. and the healthier European economies? Or will Tokyo settle for low-risk, low-return policies that might slow the decline, though do little to reverse it?

With bold "Japan is back" rhetoric, Mr. Abe has promised an ambitious rebound route. "I am willing to act like a drill bit" for deregulation, he declared early this year to the World Economic Forum in Davos. "No vested interests will remain immune from my drill."

He sees Japan's economy growing soon at a 2% annual pace, twice that of the previous 20 years, and only slightly lower than the Federal Reserve's estimate of the U.S. economy's growth potential.

Improving long-run growth prospects is now a big issue for policy makers globally. Governments and central banks responded to the recent recession by trying to spur demand with interest-rate cuts and spending programs. Now they're facing persistent headwinds to rising prosperity, like slow population growth and sagging workforce productivity.

But Mr. Abe's new "growth strategy"—an updated version of a program first announced a year ago to poor investor reviews—suggests he's using not a drill bit but a sculptor's chisel, chipping around the edges of Japan's economic foundations. Early drafts released in advance of Tuesday's formal unveiling show a pattern of proposals scaled back or obfuscated, leaving crucial details, like size and timing, blank.

The plan will include a corporate-tax cut, from the current rate above 35%, to "below 30%," in line with the average of about 29% among nations in the Organization for Economic Cooperation and Development. But it won't specify the new rate, how long it will take to get there, or what offsetting tax increases will be included to contain Japan's bloated debt.

Many changes are left to new "special economic zones" with extra freedom to cut through red tape constraining everything from hiring and firing to agriculture land ownership and management. But it will be months, or even years, before it's clear what, if anything, they've actually cut.

The new proposals "largely exceed market expectations," Nomura Securities' economists said in a report Tuesday. The Nikkei Stock Average has rallied over the past week to its highest level since late January on hopes for the package. But, they added, "we are not in a position…to forecast whether or not the government can carry out these plans with results."

This is Mr. Abe's second attempt to fire the "third arrow" of his Abenomics revival program. The first two arrows—a massive increase in money printed by the Bank of Japan and a sharp boost in public-works spending—did succeed in raising growth over the past year, and in pushing inflation to an annual rate of 1.3%, up from a 15-year average of 0.3% deflation.

But raising prices is easier than boosting long-term prosperity. "Overcoming protracted deflation itself is a great achievement," Kikuo Iwata, a deputy BOJ governor, said in a recent speech. "But in terms of revitalizing Japan's economy, it will not be enough."

Japan's "growth potential" has shriveled from an annual pace of 4% in the late 1980s to less than half a percent now, according to central-bank estimates, the result of a shrinking population, cutbacks in capital spending and stagnant productivity. Raising that figure is what the "third arrow" is supposed to do.

There's plenty of low-hanging fruit that could bear quick results. Economists say Japan could make gains in rolling back regulations just by carrying out some simple proposals that face minimal political resistance, like allowing electronic submission and processing of export and import documents.

But Mr. Abe is making only modest changes in policies seen as most significant in constraining growth and efficiency. A case in point: easing Japan's unusually tight restrictions on immigration, as well as limits on hiring, firing and pay.

As a nod in that direction, Mr. Abe is proposing a slight increase in the number of sectors that can bring in a few thousand foreign guest workers, as well as an extension of their temporary stay to five years from three.

To many Japanese, stronger growth from bigger changes isn't worth the disruption. In a recent speech, former Bank of Japan Gov. Masaaki Shirakawa portrayed deflation as "the flip side of very low unemployment." Even in the depths of the country's slump, the jobless rate stayed below the 6% level considered low in the U.S. He called the labor-market stability "a social contract."

The question, which Mr. Abe has yet to answer with clarity, is whether, in pursuit of stronger growth, he is willing to try to rewrite Japan's social contract.

Dennis 'Chip' Wilson Weighs Options to Shake Up Board, Gain More Influence

Lululemon Athletica LULU -0.10% founder Dennis "Chip" Wilson is working with bankers at Goldman Sachs GS +0.06% as he weighs options for shaking up the company's board and gaining more influence over the yoga gear maker's operations, people familiar with the situation said.

Among the founder's possible options are launching a proxy fight or joining with a private-equity firm in a buyout, other people familiar with the matter said. So far, Mr. Wilson hasn't made any decisions on further steps, said a person familiar with his thinking who wouldn't elaborate on what is under consideration.

Lululemon's board has sought advice from bankers in response, another one of the people said. The board hasn't been asked to act on a specific proposal from Mr. Wilson, and nobody has approached the board about possibly buying the company, the person said.

Goldman, which helped take Lululemon public in 2007, has had a long relationship with Mr. Wilson. The two sides are in the process of negotiating the terms of their arrangement as Mr. Wilson, who is looking for additional advisers, selects his team, one of the people said. A Goldman spokeswoman declined to comment.

The moves suggest Mr. Wilson intends to exert influence over how the maker of fashionable yoga gear is run even though he stepped down as chairman last month and relinquished his role as CEO in 2005. Last week, he announced that he was voting his 28% stake against the company's new chairman and another director at its annual meeting.

Both directors were re-elected, but the conflict prompted speculation that Mr. Wilson may have bigger changes in mind. Since announcing his opposition, the founder has received several calls from financial firms who have been soliciting him with pitches, one of the people familiar with the matter said. Bankers also are trying to interest clients in a deal.

Going private could be a big bite for a private-equity firm given the premium that would be required atop the company's $5.9 billion market capitalization, people in the industry said.

Once a highflier, Lululemon has tumbled over the past year after it had to recall yoga pants that were too sheer. The debacle cost the company tens of millions of dollars and damaged its reputation. While it was focused on fixing the quality issues, it missed a shift in consumer demand toward bright colors, patterns and new trims from solid staples. The shift caused the company to lose out on sales and left it with piles of unsold inventory.

The company's shares have lost nearly a third of their value this year and fell by 4 cents to $40.23 on Friday.

Mr. Wilson's stated frustration isn't so much with the management, led by new Chief Executive Laurent Potdevin, which he supports, but with the strategic direction set by the board. Mr. Wilson founded the company in 1998 by creating innovative designs using high-quality fabrics, and he wants the company to return to those roots by making product development a higher priority, the person said. He had expressed his dissatisfaction to the board on several occasions before going public with his concerns.

A Lululemon spokesman said the company is focused on strengthening its "product engine" and expanding around the globe.

Founders and former executives who wage a battle against their companies can sometimes face an uphill battle. Ezra Dabah, the ousted chief executive of the Children's Place Inc., PLCE +0.32% abandoned a proxy fight in 2009 after proxy advisory firms recommended that shareholders side with the company. Mr. Dabah agreed to sell half of his 4.9 million shares in the company and resign from the board at that time.

Dov Charney, who was removed on Wednesday as chairman of American Apparel Inc. APP +0.88% and told the board intends to fire him as president and CEO, is facing a similar dilemma. Mr. Charney doesn't intend to sell his 27% stake in the company, a person familiar with his plans said.