Alstom Nuclear Turbine Sale to GE and French Buyback

In 2015, the French company Alstom sold the world's largest nuclear steam turbine to General Electric (GE), a move controversially approved by the French government. Nearly a decade later, France sought to buy it back.

Understanding Nuclear Steam Turbines

Nuclear power plants consist of two main sections: * Nuclear Island: This section houses the reactor, which generates heat and hot steam. Companies like Westinghouse or GE typically provide this part. * Conventional or Turbine Island: This section contains the turbines, generators, and condensers that convert the hot steam into electricity. The nuclear steam turbine is central to this process.

Nuclear reactors produce steam that differs significantly from steam generated by thermal plants. Thermal plants superheat steam to temperatures as high as 540-600 degrees Celsius, making it very hot and dry. This process adds thermal margin and prevents condensation.

In contrast, nuclear steam is less hot (around 265-290 degrees Celsius) and less pressurized due to safety constraints. Reactor temperatures cannot exceed certain limits to prevent oxidation of metal cladding or the production of explosive hydrogen gas. Consequently, nuclear reactors cannot superheat their steam.

Without this additional thermal energy margin, nuclear steam becomes quite wet as it passes through the turbine. By the time it reaches the low-pressure blades, the steam has condensed and expanded considerably. This necessitates physically longer and heavier blades to extract maximum energy, leading many modern nuclear steam turbines to operate at "half speed" (1,500 or 1,800 revolutions per minute) to manage stronger centrifugal forces.

Wet steam poses several risks: * It reduces turbine stage efficiency by impeding aerodynamics. * Over time, water droplets can cause mechanical damage such as erosion, fatigue, corrosion, pitting, or oxidation.

Alstom was a global leader in nuclear steam turbines, holding a 30-40% market share with 136 units in operation worldwide, including their flagship Arabelle turbine.

The Arabelle Turbine

The Arabelle is the world's largest and most powerful nuclear steam turbine. Its development stemmed from France's N4 program in the late 1970s, which aimed to create a new generation of larger nuclear reactors (around 1,500 megawatt-electric). These reactors required a correspondingly larger turbine.

The Chooz B1 Arabelle turbine, launched in 1996, can produce 1,550 megawatts. It weighs 3,700 tons, is 50 meters long, and features a maximum blade length of 1.45 meters.

Key features of the Arabelle: * Its high and intermediate pressure sections are housed in a single casing, allowing steam to flow through these stages in a single path to minimize leakage. * After the intermediate stage, expanded steam passes through reheaters and moisture separators to reheat and dry it. * The massive low-pressure stage uses the largest possible blades to extract the remaining energy. In 2012, Alstom introduced the LP75 last-stage blade, measuring 75 inches (1.9 meters) long, which it claimed were the world's longest turbine blades. * The rotor, a testament to mechanical craftsmanship, is 14 meters long, weighs 140 tons, and is machined to tolerances of just 1/100th of a millimeter.

The Arabelle is a preferred turbine for modern large nuclear plants, competing with similar turbines from Siemens and Mitsubishi. An example is the Taishan Nuclear Power Plant in China, the first third-generation EPR plant to become commercially operational and one of the world's largest nuclear facilities.

Despite being a significant French technical achievement and a strategic national asset, Alstom faced business and economic challenges.

Alstom's Difficult Period

Alstom's lineage traces back to a French licensee of the Thomson-Houston company. The modern timeline begins in 1989 with GEC-Alsthom, a 50-50 joint venture between Britain's GEC and France's Alcatel Alsthom. This company, later renamed Alstom, combined the power transmission, generation, and railway assets of its parents. In 1998, it went public on the Paris and London stock exchanges, with both parent companies selling their stakes.

GEC, after selling its stake, invested heavily in US telecom companies, leading to a significant collapse.

As a newly public company, Alstom aimed to expand its core power and rail businesses to compete with giants like GE, Siemens, and Mitsubishi. This led to a series of acquisitions.

The 1990s saw deregulation in US and UK energy markets, fostering independent energy producers who built new plants, often using gas-fired turbines (especially combined cycle turbines), leading to a turbine boom.

In 1999, Alstom formed a joint venture with ABB's turbine division, acquiring it entirely the following year for approximately 2.7 billion euros. This acquisition proved crippling: * Alstom discovered that ABB had sold GT24/GT26 heavy gas turbines that failed to meet contractual requirements in numerous plants across the US, Europe, and Asia, resulting in substantial litigation and compensation. * The acquisition coincided with the end of the gas turbine boom, as overbuilding led to 90 gigawatts of announced projects in the US being put on hold between 2000 and 2002.

The nuclear turbine industry also faced a downturn. France completed its N4 nuclear program in 2000 after building only four reactors, and its domestic market was oversupplied. Germany committed to denuclearization in 2000.

These factors pushed Alstom to the brink. In 2004, the French government, after complex negotiations with the European Commission, organized a 2.5 billion euro rescue package, acquiring a 21% stake in Alstom for 772 million euros. This stake was later sold to Bouygues SA.

Alstom's troubles continued with the 2008 Global Financial Crisis and the 2011 Fukushima tragedy, which devastated the global nuclear industry. By 2014, Alstom was seen as an unwieldy, over-leveraged conglomerate with no clear path forward.

In the gas-fired turbine market, Alstom was a distant fourth with 7% market share, behind GE (which held half the market), Siemens, and Mitsubishi. Alstom CEO Patrick Kron noted that GE sold 150 gas turbines annually, while Alstom sold only about ten. Lacking funds for R&D, and with major shareholder Bouygues SA unwilling to invest further, Alstom sought to sell assets. In November 2013, Kron announced a plan to sell 2 billion euros worth of assets, including a stake in its TGV train division.

The Sale of Alstom's Energy Assets

In February 2014, Alstom, with Bouygues SA's support, approached GE about acquiring its energy and grid assets. GE began studying the acquisition, but news of the talks leaked on April 24, 2014, causing a stir.

On April 30, 2014, GE formally offered $17 billion USD for Alstom's energy assets, including gas, wind, thermal steam, and nuclear steam turbines. This proposal ignited controversy in France.

Arnaud Montebourg, the then French Economic Minister and an economic nationalist, opposed the sale to GE. He felt misled, as he had met with Kron during the secret talks but was not informed. The French government had legal mechanisms to block such a sale, including the "Danone Decree" (2005), which allowed veto power over acquisitions in "sensitive areas." Montebourg subsequently introduced the "Alstom Decree," significantly expanding the government's foreign investment veto to sectors like water, energy, and transport. However, the European Commission would likely have challenged a blunt veto based purely on economic nationalism.

In May 2014, Montebourg publicly considered a "homegrown French" alternative investment. Other bidders were sought, and in June 2014, Siemens and Mitsubishi submitted a complicated joint bid: Siemens would acquire the gas turbine division, while Mitsubishi would form a joint venture for the steam turbine division. This bid offered less cash, and Siemens did not commit to retaining jobs as GE had. Patrick Kron also reportedly preferred not to work with Siemens. An analyst at the time predicted GE would win due to its better project and fewer job overlaps.

Under pressure, GE and Alstom revised the transaction to an 80-20 joint venture (GEAST) with several sub-joint ventures. GE held the majority and managed the business, but the CEO, CTO, and half the board of directors would be French. The French government also retained a "golden share veto" to protect intellectual property control of the conventional island.

The final hurdle was Montebourg himself, who resigned in late August 2014 after public disagreements with President François Hollande over economic policy. He was replaced by Emmanuel Macron, who, while likely sharing Montebourg's view on Alstom's importance, was more pragmatic. Macron reportedly stated, "We have no legitimate grounds to intervene; we do not have a command economy, we’re not in Venezuela."

In November 2014, Macron approved the revised joint venture. The complex transaction, involving three sub-joint ventures and nuclear operational agreements, resulted in GE paying approximately 9.7 billion euros ($10.6 billion USD).

The FCPA Investigation

The controversy surrounding the sale brought to light another factor: a US Department of Justice (DOJ) investigation into Alstom for violating the Foreign Corrupt Practices Act (FCPA) of 1977. The investigation, which began in 2010, focused on alleged bribes to Indonesian officials for a 2003 deal (Tarahan) worth $118 million. The FCPA prohibits American citizens and companies from bribing foreign government officials for business gain. Although Alstom is French, it conducted business in the US and had securities listed there.

Initially, Alstom resisted cooperation but relented in 2012-2013 after the US government arrested and secured guilty pleas from several top Alstom executives, including Frédéric Pierucci, then VP of global boiler sales. Pierucci was arrested in the US and charged for authorizing payments to consultants used for channeling bribes. He was held in high-security detention for months before being released on bail in June 2014, shortly after news of the GE-Alstom deal broke.

In late 2014, Alstom pleaded guilty to FCPA violations and paid a fine of $772 million, then the largest fine under the act (though a 2008 Siemens fine was larger when including additional profit money paid to the SEC).

Allegations of Economic Warfare

Critics suggested that Alstom's sale to GE was influenced by the DOJ investigation, implying that Alstom was pressured into selling its energy business to avoid legal persecution by the US government, or that the investigation at least impacted their decision-making.

Macron himself testified to the French Parliament in March 2015, stating, "Personally, I was indeed convinced myself of the causal link between this investigation and Mr. Kron’s decision, but we have no proof."

Pierucci later authored "American Trap," alleging that he was caught in an economic war waged by the United States to dismantle economic competitors and maintain global corporate dominance. This book gained popularity in China, particularly after the Huawei incident.

Daniel Kahn, the DOJ's anti-corruption team chief, denied these allegations, telling the BBC, "We certainly didn't force Alstom to plead guilty in order to help out GE. That never entered into consideration." Alstom CEO Kron also dismissed these claims as "conspiracy theories," insisting the power assets were sold purely for business reasons. Kron believed the market was at a high point, offering a good sales price, a decision that could be seen as savvy in hindsight.

GE's Miscalculation

Jeffrey Immelt, GE's CEO at the time of the acquisition, believed Alstom's energy assets were valuable. In his 2021 book "Hot Seat," Immelt acknowledged the deal as a key part of his legacy. He stated that the deal was initiated within GE Power and he supported it for several reasons: 1. It eliminated a competitor, and he believed GE could integrate and manage the assets more effectively. 2. Alstom had a profitable turbine service business and a significant presence in wind and renewables turbines, areas where GE was weaker. This later became a billion-dollar business for GE. 3. GE was performing strongly in 2014, with nearly $110 billion in industrial revenue, 7% organic growth, and a robust power generation business, making the Alstom acquisition seem like a solid bet, even if slightly overpriced.

However, the French government's involvement prolonged the deal, leading to numerous concessions and delays. After the deal closed, misfortune struck. The 2015 United Nations Climate Change Conference resulted in the Paris Agreement, which aimed to shift away from fossil fuels, triggering a new downturn in the energy sector, compounded by general oversupply. Gas-fired turbine sales plummeted from 181 units (over 100 megawatts) in 2016 to 122 in 2017, proportionally impacting GE's sales.

Immelt admitted that GE failed to cut costs quickly enough and criticized Steve Bolze, head of GE Power, for poor execution in integrating Alstom assets and focusing on personal promotion. Immelt stepped down as GE CEO in October 2017, replaced by John Flannery. Flannery attempted a turnaround through asset sales, spinoffs, and laying off 12,000 employees from the power division.

However, Flannery lasted only a year. In October 2018, GE announced a $23 billion goodwill write-down, publicly admitting it had vastly overpaid for the Alstom assets. GE's market capitalization, which peaked at $600 billion in 2000 and was $300 billion in December 2015, fell to $65 billion by 2018. Flannery was replaced by an external turnaround expert, and GE began a multi-year restructuring.

Redemption for France

GE Power's struggles presented an opportunity for the French government to buy back the Arabelle turbine, an idea championed by Pierucci and others. The natural buyer, the French power utility EDF, was initially hesitant due to its existing financial strains and its primary role as a utility, not a turbine manufacturer. EDF CEO Jean-Bernard Lévy reportedly stated in 2020, "When it comes to turbines, I can source them from China."

However, the French government was determined to reclaim its turbines. At a Senate hearing in November 2021, Lévy confirmed that discussions were underway for EDF to acquire the division. To facilitate the deal, the government offered incentives: if EDF acquired Arabelle, the government would approve several billion euros worth of new turbines for plants and renew several older nuclear plants, signaling a French nuclear renaissance.

On February 10, 2022, French President Macron announced the Arabelle turbine buyback at the Arabelle factory in Belfort, alongside plans for a significant nuclear buildout to meet climate goals and ensure energy independence. This marked a redemption for Macron, who had approved the initial sale, as he now oversaw its return and the revitalization of France's nuclear industry.

The buyback negotiations and closure took about two years, partly due to geopolitical concerns, as Arabelle turbines had been sold to Russia, raising US government concerns. Ultimately, the deal closed, with GE receiving 175 million euros for the business while retaining certain intellectual property assets.

Conclusion

The situation has improved for most parties involved. In 2021, GE announced a split into three companies. Its energy entity, GE Vernova, is experiencing a significant gas turbine boom driven by AI data centers, with a market cap of $288 billion. The smaller Alstom, now focused on trains, is benefiting from strong organic growth in high-speed rail and metro markets globally.

The future of Arabelle Solutions, the newly created division within EDF, remains somewhat uncertain. While the Arabelle turbine is still a marvel, the company has suffered from changes in ownership and instability. EDF had reported quality defects and performance drops in 2017. Significant investment in R&D, supply chain, and other areas will be necessary to revitalize the division and maintain its leadership in the competitive nuclear turbine market, ensuring France can sustain this strategic national asset.