General Electric and Alstom rise on takeover rumours

Speculation that US jet maker General Electric is in talks to buy French train maker Alstom for about $13 billion (£7.75 billion) has driven up the shares of both companies, but Alstom today took the precaution of sending out a statement saying it has not been informed of any potential public tender offer for the shares of the company.

The deal as reported would value Alstom at a massive 25% above its recent market capitalisation levels, but the shares soared again today and were up 14.3% to 27.85 euros by noon.

One big obstacle to a takeover could be the reluctance of the French government to letting such an important strategic company fall into American hands, giving GE control over the nation's high-speed TGV trains and rail-signal technology, but according to a Bloomberg report, this has been thrashed out and a deal could be announced as early as next week.

GE is also said to have the backing of Alstom shareholder Bouygues, which owns around 29% of Alstom. Shares in Bouygues also continued to rise on Thursday, by 4.52% to 30.31 euros.

A bid, if one materialises, would be an opportunistic swipe at a French company which is experiencing a big fall in orders for thermal power plants and a corresponding rising need for cash.

In January it warned that orders had slid 12% in the first nine months of its financial year, causing it to miss its full-year profit target this year. 1,300 jobs are to be cut and €3 billion (£2.47 billion) raised by offloading unwanted assets such as a minority stake in its transport unit.

While Alstom shares have fallen around 30% over the year, GE is enjoying a strong run on the back of the shale fracking revolution in the US. Its petroleum engineering arm generated earning of $446 million in the first quarter, up 27% on last time. Chief executive Jeff Immelt said last week when he announced this trading data that he was considering acquisitions but only in the range of $1-4 billion.

Meanwhile, if there is a bid in the offing, Alstom's statement today would be a clear attempt to buy time, saying: "Alstom plans to communicate as scheduled on May 7 its annual results and will use this opportunity to give an update on the prospects of its activities."