Deal Cleared to Save Alstom of France

BRUSSELS -- - The troubled French engineering company Alstom appeared saved from near-certain bankruptcy recently when the European Commission approved a short-term bailout, involving the French government and creditor banks, worth 3.2 billion euros ($3.66 billion).

The French government had until midnight tonight to propose a short-term solution for Alstom that did not breach the European Union's state aid laws. Failure to comply would have triggered a court injunction to prevent France from taking any further action on behalf of Alstom.

The European commissioner for competition, Mario Monti, welcomed the agreement. He told journalists that France had agreed at the last moment to a deal that would not involve the French government taking a direct equity stake in Alstom.

France had first planned to buy about 30 percent of Alstom to reassure private investors, so they would finance most of the recapitalization of the company.

Instead, the French government will not buy into the company but will lend it 800 million euros, 300 million euros as convertible bonds and 500 million euros as bonds and loans with maturities of up to 15 years.

The bonds would not be convertible until after the commission completes its investigation of French aid to Alstom in about six months, Mr. Monti said.

The deal also envisions Alstom's creditor banks injecting 2.4 billion euros into the company: 300 million euros in shares, 900 million euros in convertible bonds and 1.2 billion euros in subordinated loans.

Patrick Kron, Alstom's chief executive, said in Paris: "The new package provides Alstom with a strong base from which to move ahead. It meets our fundamental objective: a substantial increase in our equity base, with the prospect of the French state becoming a shareholder if the European Commission, following its review, grants approval."

The government of the French prime minister, Jean-Pierre Raffarin, also hailed the deal. "Alstom is saved," Mr. Raffarin said today. "Confirmation has come from all partners."

The commission has no say over the ownership of companies, but when a government steps in to help a struggling company, the European Union's competition commission may object if it thinks the government is not behaving as a rational private investor.

Mr. Monti said he expected Alstom's banks to sign up to the deal.

Alstom employs 110,000 people worldwide, around 26,000 in France alone. It makes France's high-speed TGV trains and its turbines generate electricity to a fifth of the world. Mr. Monti said the political pressure on him to agree to a solution that would save the company was intense.

"There were powerful calls at the highest political levels in France and in other countries for the commission to be flexible in this case," the commissioner said, adding that some critics said that the injunction itself would have been enough to push Alstom into bankruptcy.

President Jacques Chirac of France and Chancellor Gerhard Schröder of Germany, as well as French union leaders are reported to have urged Mr. Monti to be lenient.

By permitting France to lend the company 800 million euros, some argue that Mr. Monti had indeed bowed to pressure. That amount exceeds the 600 million euro equity stake France planned to take in Alstom.

Mr. Monti, however, claimed victory in the standoff with Paris.

"France modified its plan. If it didn't, then the injunction would have gone," he said, adding that the Alstom case shows that "no matter how large a member state is, the rules are there and must be observed."

Alstom's problems began three years ago, when it revealed problems with gas turbines it had bought from the Swiss engineering company ABB that cost it over 1 billion euros in charges.

The next blow came in September 2001 when Renaissance Cruises, a major Alstom shipping-building client based in Florida, went bankrupt.

Last year, Alstom embarked on a restructuring plan called Restore Value. In March this year, the company dismissed its chairman, Pierre Bilger, and announced a new restructuring plan, Restore Value II.

Then in August the French government decided to intervene to save the company. The commission, which is dealing with three other state aid cases involving France, balked at the plan to buy a stake in Alstom.