Leaks from within the government over the past few days suggest Paris is ready to buy Alcatel units it considers too important to fall into foreign hands. The move may be designed to defend Alcatel's most important operations, but by implication, whatever the state doesn't buy could be considered fair game.
The latest rumor, which appeared in the French press on Thursday, Dec. 20, suggested the state could partner with France Télécom SA to buy Alcatel's subsea cable laying operations. Ministers and representatives of France Télécom Marine were due to meet Thursday morning to discuss a plan, according to French business daily Les Echos, which said they could bid €100 million to €150 million ($132 million to $198 million) for the unit. The state-controlled Fonds Strategique d'Investissement, set up by former President Nicolas Sarkozy to invest in strategic industries, could also make an offer for at least part of an Alcatel-Lucent unit that makes the cables.
The government was spurred into action after Alcatel on Dec. 14 said it had agreed to a €1.6 billion debt deal underwritten by Credit Suisse Group and Goldman Sachs Group Inc. and secured against a €5 billion intellectual property portfolio. With Alcatel losing an average €700 million a year since the 2006 merger of Alcatel SA and Lucent Technologies Inc., the government appears to have realized that the struggling company could forfeit the right to technologies that are considered strategically important to France.
That assumes that Alcatel doesn't sell them first. The company is seeking buyers for up to €1.5 billion of its assets, it said last week. It is in early-stage talks about the subsea cable operation, according to one report.
Once, the French government might have weighed in more directly to secure a French future of one of its industrial darlings. In 2003, the government of Jacques Chirac spent about €2.8 billion to buy a 31.5% stake in Alstom SA, and save the engineering group from collapse. But the French state is under pressure to cut spending and debt and money is scarce. Earlier this month it balked at the thought of nationalizing an ArcelorMittal steel mill, despite ministerial claims, later denied, that a buyer was ready to acquire the unit.
Alcatel is not on the brink of bankruptcy. Its new debt deal lowers its financing costs and with about €4.7 billion in cash, cash equivalents and marketable securities it can easily meet the roughly €2 billion it is due to repay over the next three years. Shares have climbed 35% over the past month to trade Thursday at €1.05, though they remain down about 80% over five years.
Alcatel CEO Ben Verwaayen maintains that the company can be turned around. Analysts are worried that buyers will emerge only for the more attractive assets, diminishing cash flows and further diluting shareholders to appease debtors.
Whatever happens, any French state purchase of Alcatel assets deemed too important to lose means that investors and potential buyers may soon at least know what assets are in play.
Gordon E. Dyal is leaving Goldman, Sachs & Co., where he is co-chairman of the investment banking division. For other updates launch today's Movers & shakers slideshow.
Low interest rates and alternative financing sources are just two of the many things affecting private equity deals right now, according to Paul Aversano, managing director at Alvarez & Marsal LLC. In a recent studio interview, Aversano discussed the conditions both buyers and sellers are facing at this time. Aversano, who is also the global practice leader for the firm's transaction advisory group, also outlined how low interest rates will continue to affect the M&A market and the pressure that PE firms are feeling to transact. More video