General Electric won European approval Tuesday for its €12.05 billion partial takeover of Alstom after agreeing to sell certain assets to an Italian rival.

GE will sell “central parts of Alstom’s heavy-duty gas turbines business” to Ansaldo Energia, which is 40 percent owned by China’s Shanghai Electric, according to a statement by the European Commission. GE also ceded 34 service contracts out of about 100 for heavy-duty gas turbines.

“Even if Ansaldo is not the strongest player, this gives them a fighting chance,” said Margrethe Vestager, the European commissioner for competition. The remedy package will enable Ansaldo “to get insight from the servicing contract and revenues from the contracts.”

U.S. authorities also gave the deal a thumbs-up Tuesday.

The deal will reshape the competitive landscape in Europe, consolidating GE’s position as a global leader for power generation equipment by adding Alstom’s superior steam turbine technology and its offshore wind power and hydro power businesses to GE’s portfolio. It will also allow the emblematic French firm to focus on its train-making business.

That would set the stage for Ansaldo to enter Europe’s €25 billion turbine market, which is fast-adapting to the decline in coal and nuclear and the rise in natural gas and renewable fuels.

Ansaldo will need to establish itself on a market that will be a virtual duopoly between GE and Siemens.

William Mackie, a stock analyst at Kepler Cheuvreux, said the deal fits the pattern of consolidation in the power-generation market.

“What is going to happen naturally is that there will probably be more competitive tension between GE and Siemens,” he said, adding that most of the divestitures in the Alstom deal were duplicated technology or resources.

The Commission demanded concessions because it was concerned the deal would have given GE a dominant position in the market for gas turbines, allowing it to raise prices for the utilities and local authorities that build power stations.

GE, for its part, insisted the European market was shrinking and investigators should consider the competitive pressure from global rivals.

That argument may have held sway with the Commission.

Harald Thaler, director for the energy industry at consultancy Frost and Sullivan, said he was uncertain whether the concessions would ensure sufficient competition.

“Despite what the Commission wants to achieve, really this will depress competition in the industry further because there will be one less option in the market,” he said, adding that Mitsubishi, the No. 3 global player, did not have significant operations in Europe.

“The interesting thing will be that this could open up the path the entry of a Chinese player in the market,” he said.

The weight of history and politics

The compromise brought a collective sigh of relief in Brussels, Washington and at GE’s home in Fairfield, Connecticut, where there were fears the Commission could block the deal in a re-run of its notorious 2001 decision killing GE’s $42 billion bid for industrial conglomerate Honeywell.

GE worked to reduce tension surrounding the merger review process, pointing out that it has successfully closed about 50 mergers in Europe since the Commission

“I am sure that this was not an easy case for Vestager either. The merger was so significant for the French government, and in particular its economic minister, the Commission could not really afford a negative decision,” said Götz Drauz, a senior counsel at law-firm Wilson Sosini.

The decision was welcomed in Paris and in the Franche-Comté town of Belfort, where Alstom and GE factories sit side-by-side. Belfort is just 14 kilometers away from Doubs, the constituency that was the power base for Pierre Moscovici, European Commissioner for economic and financial affairs.

After protracted negotiations with GE, the French government threw its political muscle behind the merger, believing that it would guarantee jobs in France.

As the merger review process progressed, French government sources voiced concerns that Alstom, known for making France’s high-speed TGV trains, would struggle to survive on its own, raising the specter of thousands of French job losses.

Approval “is the least worst option in terms of jobs, provided that there are certain guarantees and that these be respected,” says Nathalie Griesbeck, a French centrist member of the European Parliament, whose constituency includes Belfort. “We must be attentive to ensure that these employment guarantees are met.”

The French shake-down

GE was forced to make various commitments to the French government, which threatened to block the deal.

Arnaud Montebourg, the bullish left-winger who was France’s economy minister at the time, reacted furiously when negotiations were leaked in April 2014. The government rushed through a law handing the government the power to block the “sensitive” mergers.

But it eventually swung behind the deal after GE promised to ring-fence some of Alstom’s nuclear activities, ensure certain business operations remained and create 1,000 new jobs in France.

GE also agreed to transfer its train signalling business to Alstom. The hope in France is that Alstom, with additional cash and bulk, will emerge as European champion in the sector, better equipped to face down international competition from Bombardier, Hyundai and Siemens.

“Following Alstom’s disposal of its power assets, the company will be exclusively focused on transport, which in itself is a market segment undergoing consolidation,” said Martin Kohlhase, vice president at credit rating agency Moody’s.

GE’s experience of dealing with the French government is not unique: More recently the French government extracted a promise from Nokia that it would create new jobs in France if it bought Alcatel-Lucent, a French telecoms equipment company.

The story was updated to add details from press conferences. 

Click Here: Newcastle United Shop