General Electric’s (NYSE:GE) acquisition of Alstom's (PA:ALSO) energy business has ran against the opposition of the European Commission, which has challenged the EUR12.3 billion (US$13.5 billion) plus US$3.4 billion of net cash, totaling US$16.9 billion transaction because of potential antitrust violations.
GE and Honeywell ran into a similar obstacle in 2001, failing to merge because, despite being cleared by the US Federal Trade Commission they faced a veto imposed by then EU Commissioner Mario Monti. It is said that GE’s iconic CEO Jack Welch, since retired, “literally kicked” Monti’s door.
The actors may have changed. GE’s CEO is now Jeff Immelt and the EU Commissioner is Margrethe Vestager, but the reasons motivating the EU's objections have not.
As it did in April for Google and Russian gas company Gazprom, Vestager is concerned about the excessive market dominance that the GE-Alstom union would enjoy and she will present a Statement of Objections to GE.
A "statement of objections" occurs when there is substantial evidence that a merger would violate antitrust laws. Vestager opened a detailed investigation on 23 February and set a deadline of August 21 to accept or reject the transaction. The Competition Commissioner visibly remains doubtful.
In case of merger, the EU Commission, said there would be just two major European players in the manufacturing and maintenance of high-power gas turbines for GE and Siemens power stations. Such concentration poses a risk by stifling innovation and leading to higher prices.
Only Hitachi Mitsubishi Power Systems could pose a challenge to GE-Alstom o Siemens. For now, the US company holds about 50% market share, against 23% for Siemens, 13% for the Japanese group, 7% for Alstom and 3% for Italian Ansaldo Energia, 40% of which was sold to Shanghai Electric.
The prospect of EU vigilance has caused Alstom’s shares at the Bourse de Paris to dip 7% on Thursday. According to many experts, the group no longer has the critical size or the financial strength to survive by itself in the energy business. It sells ten times fewer gas turbines that GE, and as its CEO Patrick Kron pleaded at the start of the renewed GE merger talks in April 2014, “Alstom cannot write its future by itself”.
The French government approved GE’s acquisition of Alstom, the largest in its history, in June 2014, with the blessing of the French government.
For its part, Alstom is taking the EU’s statement of objections as part of the process, noting it is a “usual step in a phase II merger case and it does not prejudge the outcome of the investigation. This will allow both General Electric and Alstom to address specific matters pointed out by the investigating team.”
Meanwhile, GE’s boss, Immelt sees Alstom Power as adding 500 gigawatts of power, doubling its capacity. Now this highly profitable service business is, he said, "is at the heart of our competitive advantage, in the heart of synergies".
Immelt said he would be ready to make concessions, warning that GE would not give up "anything that impacts their revenue" before an audience of investors in Florida last May. By that the CEO has suggested that the company would not give up the maintenance of gas turbines, evoking only the sale of patents according to French daily “Le Monde’.