State-Created Barriers to Exit? The Example of the Acquisition of Alstom by General Electric

Abstract

This paper seeks to understand the competitive impact of State restrictions to M&A transactions which target domestic corporations. In the economic literature, a rich body of papers has examined the impact of State restrictions in terms of market access, international trade and FDI. In contrast, the consequences of State restrictions in terms of economic competition remain poorly understood. To discuss the competitive effects of State restrictions to M&A transactions that target domestic firms, the present paper offers a case study of the takeover of the French company Alstom by the US conglomerate General Electric (“GE”) in 2014, and of the measures adopted by the French Government to undermine it. This case is interesting. Unlike in the conventional scenario where Government intervention leads to prohibit the transaction, the Government interference did not kill the GE/Alstom transaction. Rather, in GE/Alstom, the French Government re-engineered the initial transaction. In lieu of an “absorption” of Alstom by GE as initially envisioned, the parties were forced to seal an “alliance”. Our case-study shows that State interference may influence the competitive conditions in the market. In particular, we advance a counterintuitive idea. Whilst the traditional market access literature would lead to envision State interference as a form of measure that protects the domestic firm, we show that State interference can also harm the domestic firm. In particular, in the case in point, the French Government measures may have locked Alstom behind exit barriers, by preventing it to leave the energy markets it purported to quit. We review empirical data to test our hypothesis. In practical terms, we believe our findings are important, because the literature on failed industrial projects suggests that Governments are often bad at making exit choices. This should be kept in mind, at a time where proponents of strong industrial policy agendas are increasingly vocal. Moreover, our analysis may have implications for antitrust policy. As much as entry barriers, barriers to exit prevent the emergence of competitive markets and are thus a concern for antitrust agencies. Moreover, State interference with M&A risk undermining the efficacy of merger control systems, in depriving the antitrust agencies’ of the ability to negotiate remedies that remove competition concerns.