GE to Pay About $464 Million More in Alstom Deal--Update

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 [e-mail]

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