French Economic Nationalism Lives On

By MATTHEW CURTIN
True to form, economic nationalism may be about to trump industrial logic in France. Nuclear engineering company Areva, 93%-owned by the French state, looks set to sell its transmission and distribution business to Alstom and Schneider Electric despite their inferior offer, according to a person familiar with the situation. Paris is fully prepared for the inevitable criticism. But rival bidders Toshiba and General Electric stood little chance.
Alstom and Schneider have been outbid by Toshiba, which is offering €4.2 billion ($6.36 billion) compared with roughly €4 billion from the French and third bidder General Electric. The two French companies propose a riskier future for the transmission and distribution business. They want to split the company's high-voltage and medium-voltage activities, arguing that will create more value than integrating the business as a whole, the plan at Toshiba and GE. Unlike Alstom and Schneider, the business's main rivals, ABB and Siemens, also are integrated-equipment suppliers. But old distinctions between transmission and distribution are blurring as customers focus on integrated approaches to energy efficiency, from the power station to the digital smart meter at the point of consumption. By some estimates integrated contracts account for 30% of the market.
Toshiba and GE bent over backward to accommodate French political concerns. They offered to list the transmission and distribution business in Paris and keep the headquarters in France, making it look little different from most CAC-40 companies, majority-owned by foreign shareholders. That hasn't satisfied Paris, which never expected foreign bidders to trump the domestic offer in an auction. The government's chief worry was that it would be tough to get a decent price for the transmission and distribution business to repair Areva's balance sheet. The recession has knocked back demand for power equipment. Instead, the Toshiba and GE bids have underscored how transmission and distribution is a sweet spot in the infrastructure market.
Of course, there still is time for the French government to change its mind. But Paris has shown before it has a thick skin when it comes to international criticism of its nationalist industrial policy. Toshiba and GE likely are to learn the hard way what should have been clear from the start.
Write to Matthew Curtin at matthew.curtin@dowjones.com