Alstom confirms state buy-up

High speed trains are an important part of Alstom's business

French engineering giant Alstom has announced that the French government is to give it 300m euros (£211m; $339m) in exchange for almost a third of the company in an attempt to bail it out of crippling financial difficulties.

The government move, part of a massive financing package, was leaked to the press and confirmed to the European Commission by Finance Minister Francis Mer.

It immediately attracted European ire, with the Commission wasting no time in declaring the assistance to be "illegal" state aid.

But in an announcement this morning, Alstom - which employs 75,000 people in Europe and is a trophy company for France - said the deal was going ahead.

Alstom shares - down more than 90% in the past year - have been off the market since Monday, but are set to start trading again at 0930 GMT.

The company ran into trouble thanks to a combination of tough competition and the exposure of accounting problems at its shipping division, discrediting its management and resulting in its stock being kicked out of the blue-chip Cac 40 stock index

Rescue

The government money - which gives the state 31.5% of the company - makes up half a 600m euro increase in the firm's capital, and forms part of an overall 3.5bn euro financing package.

The package is intended to patch up a badly shredded balance sheet, which at present carries debts totalling 5bn euros despite a market capitalisation of less than 1bn euros.

The French government has already helped Alstom by making sure state-owned nuclear power group Areva buys the stricken firm's power transmission division for 1bn euros, leaving Alstom focused on train and boat construction.

But the bailout may yet run into trouble, since the EC has made it clear it believes the move breaches EU competition laws which ban member countries from pouring taxpayers' money into companies that have run into trouble.