By Ted Mann
The cost of General Electric Co.'s largest-ever acquisition just
got bigger.
In addition to the $17 billion GE is paying to acquire the
energy assets of France-based Alstom SA, the company has agreed to
additional contracts that will cost the equivalent of $464
million.
In the process of completing the deal, Alstom said Wednesday the
two companies had agreed to new "ancillary commercial
agreements"--a major benefit as the French company copes with low
cash flow and a record $772 million fine from the U.S. Department
of Justice.
Both companies have said that Alstom, not GE, will cover the
cost of the fine, which stemmed from criminal charges that a unit
of the French company had engaged in overseas bribery to secure
power-generation deals in countries like Indonesia and Egypt.
"In a deal of this size, there are agreements that are
negotiated until closing," said GE spokesman Dominic McMullan. "The
net result of these commercial agreements has not changed the
overall economics of the deal."
Under the terms of the settlement with the Justice Department,
GE won't be responsible for any part of the penalty.
Neither company has explained the details of the new agreements,
but Alstom Chief Executive Patrick Kron has previously said they
would include allowing GE to license Alstom's brands for future
use. In December, Mr. Kron said the additional cash from GE would
help offset the cost of the fine.
Addressing analysts on a third-quarter earnings call Wednesday,
Mr. Kron said the new contracts will bring in about EUR400 million
($463 million) and he expects to receive those funds from GE soon.
"The bulk of what we are going to get is basically increased cash
that we'll get promptly," Mr. Kron said.
In other areas of the Alstom transaction, GE has said that it
worked out financial terms before the final agreement was struck.
For instance, the company has said that any risk arising from
Alstom's book of orders for power projects across the globe was
"priced in" to the cost of the deal. The same was true for any
potential fine related to Alstom's alleged violations of the
Foreign Corrupt Practices Act, GE Chief Executive Jeff Immelt has
said.
European antitrust officials are expected to decide whether to
preliminarily approve the acquisition by Feb. 23. Mr. Kron said he
expected only "limited overlaps" where regulators might require
that the company divest operations for competitive reasons.
The deal includes a provision that would enable the parties to
"carve out" business units that are still awaiting regulatory
approval to move ahead with completing the overall deal, Mr. Kron
said. The companies expect the deal will close in mid-2015.
GE remains bullish about the Alstom deal's prospects. Mr. Immelt
told investors last month that integrating Alstom into GE's
industrial business was the company's biggest priority for
2015.
While noting that Alstom's cash reserves were weaker than
expected, Mr. Immelt said GE had already found better-than-expected
opportunities to wring out greater earnings thanks to synergies
between the two energy businesses.
Write to Ted Mann at ted.mann@wsj.com
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