Why GE’s Bid for Areva T&D May Be Toast (French Toast)

Yesterday we told you about General Electric’s bid for Areva T&D, the transmission and distribution division of Paris-based Areva SA, the world largest builder of nuclear reactors. GE was one of three companies submitting bids; the other two were Toshiba Corp. in Japan and a French consortium that includes Alstom and Schneider Electric.

The news caught some by surprise. Ironically, the T&D group has been one of Areva’s top-performing divisions. But now the parent company has a real need for cash due to botched nuclear projects, forcing it to liquidate something... and Areva T&D is separate enough from the parent's core business to make it the logical candidate.

The T&D division is strong overseas in transformers and substation equipment, but failed badly a few years back when it tried to capture share in the U.S. The real star of the division is the Redmond, WA-based software business, which has a leading share in control room software, including energy management systems (EMS), distribution management systems (DMS) and market software for bulk electricity sales. If GE can bring in that part of the business for a reasonable price, it will fill an important gap in GE’s product line. At the same time, GE’s sales force (and brand) could certainly help sell more transformers in the U.S.

But GE may never get the chance to create those synergies, no matter how much it bids. Consider these two tidbits:

·         Areva SA is 91% owned by the French government

·         Chauvinism (defined by WikiPedia as “bellicose patriotism and a blind belief in national superiority”) was named after Nicolas Chauvin, a soldier who served under Napoleon Bonaparte

I won’t go so far as to say that the French invented chauvinism, but they have certainly worked hard to perfect it. So even though the French government is interested in getting a good price, it is also concerned about the “cultural” aspect of the new ownership. In other words, if a French consortium is anywhere in the ballpark, it is likely to get the nod over Japan (Toshiba) or the U.S. (GE). In fact, this same T&D division was previously owned by French firm Alstom – and a similar "swap" occurred when that company needed money. The French really do like to keep things in the family whenever possible.

GE, mindful of the French attitude, has promised that if its bid is successful it will base the combined division in France. GE also indicated it would seek out minority partners, including French investors and sovereign funds in various parts of the world.But I suspect it will take more than that to win the French over. It would be a great purchase for GE... but unless GE is willing to make French its official language and substitute champagne for Starbucks in its cafeterias, it may have a tough time winning the auction.  A decision is expected Nov. 16.

More on SGN:

   Smart Grid Transmission Channel on SGN, with news, resources and announcements

   Behind-the-scenes look at GE’s smart grid strategy

   Smart Grid company profile – Areva

   Smart Grid company profile – GE