General Electric scored large in its win over Siemens to buy the energy arm of French industrial giant Alstom.
But being forced to accept the involvement of the interventionist French government in its largest-ever acquisition could render the deal less sweet than GE hoped.
On Saturday, the American company finalized a 12.34 billion euro ($16.8 billion) agreement to take over Alstom's energy businesses.
The prize is Alstom's gas turbine business, which GE will take over completely. It is a large, lucrative business with long-term contracts and income streams, and GE is already the world leader in the sector.
But GE will also take on Alstom's nuclear, steam turbine, offshore wind and hydro power businesses, which it will run as 50-50 joint ventures with French shareholders including, most importantly, the government.
And it will fold its electricity grid business into Alstom's, also to be run as a 50-50 joint venture.
Meanwhile it will hand its own train signalling business to the firm's high-speed rail operation -- which makes France's famed TGV trains -- and which will then be the core business of Alstom.
None of that was part of the US titan's original proposal, but it faced a French government challenged by recession and soaring unemployment and determined to protect the jewels of French industry.
To seal the deal, GE had to pledge to create jobs in France when it might have originally thought to make gains through consolidation. It agreed to the government holding key blocks of shares in the joint ventures, and granted the government a veto over key decisions.
Among concessions it had to make: a pledge to pay penalties of 50,000 euros for every job out of the 1,000 promised that it fails to create in France.
- Pyrrhic victory?
Analysts said the deal would reinforce GE's strong position in the power turbines industry and ensure it has a presence in other key facets of the global electric power industry.
But some worried GE might have ceded too much to get the assets it wanted.
"I am sure the critics will question the merits of the Alstom transaction. This a pyrrhic victory," said Albert Alfonso at SeekingAlpha.com.
"General Electric had to make several concessions to the French. However, closing any deal is a victory given the extremely protectionist government in power."
Deutsche Bank cheered the final deal "as it reduces GE's risk while still largely preserving the profit contribution and return dynamics."
It noted that GE is committing less capital -- only $10 billion in cash -- to the deal, getting a good valuation for its signalling business transferred to Alstom, while strengthening its own grid business.
"Meanwhile Alstom and French government now share the risk for assets that could still harbor significant hidden liabilities."
GE says it was not a concession to allow the French government to take a share of the new entities.
"We knew before we get involved in the deal that the French government will interfere. This is not a surprise. We know how to work with the French government," said a GE official.
"Overall this deal makes sense for GE. There are synergies outside of the joint ventures," he said.
GE also brushed off the potential costs of its promises to add jobs in France with the acquisitions.
With some 305,0000 employees around the world at $146 billion in turnover, adding a promised 1,000 positions over three years in France would not be a large problem.
Morgan Stanley analysts said GE is still predicting $1.2 billion in savings despite having to set up the joint ventures with the government. But earnings gains in the short term could be lower than forecast.