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ORIGINAL FRENCH ARTICLE: L’ art de se sucrer toujours plus sur Alstom

by Leslie Varenne

Alstom: Selling France’s Industry Jewel to Profiteers

Translated Friday 11 July 2014, by Tom Gil

Corruption, conflicts of interest and other misdemeanours - every day brings new revelations about the deal that led to the dismantling of France’s industrial gem Alstom to the profit of America’s General Electric. Here’s a flavour of the cozy arrangements and other delights between friends

Patrick Kron, a happy man ...

In July 2013, Alstom was accused of corruption by the American justice system. The group risked a fine of EUR 1 billion and its CEO, Patrick Kron, and a hundred executives, faced investigation. But the storm passed, the thick black clouds hovering over top executives dissipated miraculously through a legal sleight of hand.

According to the press release of 22 June, instead of selling 49.99% of three joint ventures, Alstom will sell 100% of its assets to General Electric (GE). The particular advantage to Alstom of selling all of its businesses is that it relinquishes all the legal risks associated with its companies. Then Alstom is to acquire from GE 49.99% of these enterprises. The operation allows the leaders of Alstom to escape financial and personal legal threats. Voilà, Patrick Kron and group executives who prior to the deal could not travel to the United States can now go and light a candle at the foot of the Statue of Liberty and finally sleep easy ...

Co-operative friends

Patrick Kron, who stands to make tens of millions of euros from the deal [1], is not the only happy man on the board of directors.

The CEO’s friends on the board proved very cooperative throughout these negotiations, and they have consequently been well looked after. The first of them is Jean-Martin Folz, mentor of Patrick Kron at aluminium producer Pechiney, where he climbed right to the top of the corporate ladder. Mr. Folz had the difficult task of chairing the Independent Committee in charge of analyzing the offers from GE, Siemens and Mitsubishi. It should be added that he is also in charge of ethics and compliance on the board, namely legal disputes, notably the one in the United States...

The second friend on the board is Mr. Chodron de Courcel, number two in France’s largest bank, BNP. He was forced into early retirement at the request of the US authorities for non-compliance with the embargo on Iran, Cuba and Sudan. In addition to Alstom, he is also a director of Bouygues, which holds a 29.3% stake in Alstom. This fact alone suggests it is unlikely that de Courcel would oppose the preference for the GE deal of his friend Martin Bouygues - CEO and controlling shareholder of the construction-to-media conglomerate.

The third good friend on the board is Klaus Mangold, vice president of Rothschild Europe. An investment bank that has been advising Alstom on the deal with GE!

On a proposal from top management, the board decided to grant its members a substantial increase in attendance fees, of more than 300,000 euros, bringing the annual remuneration of its directors to 1.3 million euros. In these times of austerity, it was daring.

But they did it and justified it thus: "This increase in budget set last year is necessary especially given the anticipated increase in the number of board meetings and committees during the current year related to the acceptance and review of the firm offer received from General Electric for the acquisition of energy Alstom activities."

The directors have therefore had extra workloads due uniquely to the GE offer. Does this mean that they did not work on the competing offer proposed by Germany’s Siemens and Japan’s Mitsubishi? The losing bidders would surely like to know. The general meeting of shareholders of the group held on 1 July nevertheless voted for this sharp increase in the pay packets of the directors.

White elephant

The scheme adopted for Alstom’s new energy arm is complex. But the case is likely to be further complicated, since Alstom’s transport arm, hitherto spared, is now preparing to open up to new capital. Will the Bouygues group sell the remaining 9% of equity, after it sold, in an unorthodox manner, a 20% stake in Alstom to the state? So far, Martin Bouygues, remains silent on his plans and strategy within the group.

His faithful friend, also CEO of Alstom Transport, Henri Poupart-Lafarge, said ("Les Echos" June 25): "Some partners might be interested in taking stakes in Alstom." The Minister of Economy, Arnaud Montebourg, adept at precise pronouncements, declares: "We are in favour!" After caving in to the Americans, the self styled defender of Gallic industry is apparently now keen to sell even more shares in the French energy jewel to any willing buyer.

According to one person who participated in the Alstom-General Electric negotiations: "The Americans were not interested in rail passenger transport, it was more acceptable politically to conduct the sale of Alstom in two stages. In addition, it would avoid the rules governing takeovers" [2]. Another expert on the dossier said: "By opening up the capital of Alstom Transport, we are trying to limit the influence of the state in this sector. This illustrates that the chosen solution cannot work. It is a vision of technocrats, not of industrialists, and the consequence is that General Electric is the boss!"

The Harder They Fall

Typically, when France’s top stock market listed CAC 40 companies engage in mergers and acquisitions, the brokers rejoice and the value of shares take off. In the case of Alstom, the price fell by nearly 5% in the first week after the agreement, proof that this white elephant of a deal does not even excite financiers! The government’s lack of preparedness, posturing and u-turns on this issue also contributed to concerns.

This situation contrasts sharply with the unfailing support of the United States administration to America’s strategic companies. In her latest book entitled "Hard Choices," Hillary Clinton reveals that when she was Secretary of State in October 2012, she lobbied for GE to Algerian President Abdelaziz Bouteflika. Result: it was awarded a contract of 2.5 billion dollars (1.8 billion euros). Our Foreign Minister, Laurent Fabius, prefers to pose as weather presenter for "Parisian magazine" [3] or welcome Chinese tourists at the airport of Roissy. As Alexis de Tocqueville might have said, we have the industrial policy that we deserve.

[1Kron’s existing share and share option portfolio could increase in value by 16 million, plus he’s in line for a gold plated pension of 20-30 million euros and an expected but as yet unquantified golden parachute, courtesy of GE, according to L’Humanite, "Vente d’Alstom : qui va gagner un paquet de millions ?", 4 July 2014

[2Stock market rules force a buyer to launch an offer for all shares outstanding in a company whenever a shareholder acquires 30% of a company, a threshold France regards as a change in effective ownership.

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