By Tom Fairless
BRUSSELS-- General Electric Co. faces a critical few weeks of
negotiations with Europe's antitrust regulator as the U.S.
industrial giant seeks to close its biggest acquisition without
being forced to make painful concessions.
The planned $17 billion acquisition of France-based Alstom SA's
power business is central to GE's plan to return to its industrial
roots, but European Union regulators are worried that the deal
could lead to higher prices for large gas turbines in Europe.
The deal has faced multiple delays as GE sought to convince
regulators that their concerns were misplaced rather than, for
instance, the company putting forward proposals to unload a part of
the power business.
Overseeing the investigation is the EU's new antitrust chief
Margrethe Vestager, who has shown few qualms taking on powerful
companies. Last month Ms. Vestager filed formal antitrust charges
against U.S.-based Google Inc. and Russia's Gazprom OAO. She met
with Jeffrey Immelt, the chief executive of GE, last week.
In the background looms GE's failed $45 billion takeover of
Honeywell Inc., which the EU blocked in 2001 after U.S. competition
authorities gave it the green light.
The purchase of a French industrial crown jewel by an American
company became politically charged, as GE was forced to stave off a
rival bid from Germany's Siemens AG, which was pulled into the
contest by French officials seeking a European buyer for
Alstom.
EU regulators opened an in-depth probe into the deal in
February, almost a year after the offer was announced.
An initial July 8 deadline for the investigation was extended by
a month in March, and the probe was then suspended in mid-April as
the EU waited for the companies to provide other information. That
suspension was lifted on Tuesday, according to the European
Commission, the bloc's top antitrust regulator.
The new deadline for a decision by EU regulators is Aug. 21.
GE has sought to convince regulators that heavy-duty gas
turbines are sold in a global market by four competing companies,
including Siemens and Mitsubishi Hitachi Power Systems, and that
only 5% of demand is in Europe, where the EU says only two
competitors would remain after the merger.
The company's approach has been bolstered by support for the
deal from the French government and customers. "The French
government is very, very supportive and advocating for the deal,
and customers are supportive," a person familiar with the matter
said. Brazil's regulator has also approved the deal, another
positive signal, the person said.
EU regulators appear skeptical.
Ms. Vestager said in March she wasn't convinced by arguments
that the EU should look at global markets, and stressed that
mergers shouldn't happen at the expense of consumers.
"The argument goes that we need to protect companies, to help
them become bigger companies, otherwise they can't take on
international rivals," Ms. Vestager said. "I'm not convinced about
these arguments."
GE said on Monday it was ready to offer concessions, adding that
the lengthy investigation was causing uncertainty with employees
and customers of Alstom. Industry experts say the company could
have taken those step months ago rather than seeking to convince
regulators that they were wrong.
The EU had "never mapped out clearly" what it wanted from GE,
which didn't know "what their red lines are," according to the
person familiar with the matter.
Under EU antitrust law, it is up to companies to propose
remedies that address the regulator's concerns after they have been
stated, or to convince the regulator it is wrong. Brussels doesn't
make demands of companies.
The latest two-week suspension gives GE valuable breathing space
that could allow it to avoid a formal list of the EU's complaints,
known as a statement of objections, said Anne MacGregor, an
antitrust lawyer with Cadwalader, Wickersham and Taft LLP in
Brussels, who is watching the probe closely but isn't connected to
the case. Given the current deadline, the formal charge sheet could
be sent in late June unless GE satisfies the EU's concerns before
then, she said.
The EU could also approve the deal after it sends a formal list
of complaints to GE provided its concerns are assuaged.
Meanwhile, GE has already been working for weeks on possible
remedies, and those are now being discussed with regulators, the
person familiar with the matter said.
Despite GE's willingness to discuss remedies, problems could
still lie ahead.
A large part of the revenue from large gas turbines comes from
servicing the equipment in the years following installation, said
Ms. MacGregor. The commission may be concerned that independent
third-party maintenance and servicing companies aren't getting
enough access to the service contracts, she said. If so, the EU
might require that other service providers can more effectively
compete for those servicing contracts.
GE has indicated that servicing the big installed base of
Alstom's products is a key attraction of the deal. That means the
room for negotiation may be narrow.
Write to Tom Fairless at tom.fairless@wsj.com
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