By Natalie Huet and Elizabeth Pineau
PARIS (Reuters) - The French government raised the stakes in the battle for engineering group Alstom on Tuesday, telling rival suitors General Electric and Siemens to come up with better offers.
President Francois Hollande's government has given itself the power to veto a deal on the grounds it does not want Alstom , an innovator and big employer, to sell the bulk of its business to a foreign firm without the state having a say.
In a crunch week ahead of Monday's deadline on GE's American bid, Germany's Siemens presented Hollande with a joint proposal with Japan's Mitsubishi Heavy Industries <7011.T> that it said valued Alstom's power arm at 14.2 billion euros ($19.3 billion) - above GE's 12.4 billion offer.
But Hollande's government swiftly responded by saying it expected better efforts from both bidders.
"The talks between the state and the different companies are going to continue this week," a source in Hollande's office said after the meeting with chief executives Joe Kaeser of Siemens and Shunichi Miyanaga of MHI to hear their proposal.
"The offers must be improved," the source said.
However, Kaeser said he saw no reason to discuss improving a proposal which he reckoned was already the better of the two on the table for Alstom in terms of asset valuation, strategic future and jobs.
"Why would a superior offer be improved if it is superior already? There is no reason for us to discuss that question at this time," he told a joint news conference with Miyanaga.
A source close to GE said it was still discussing parts of the deal with the French state - notably on Alstom's rail, nuclear and renewable energy assets - but added: "GE will not enter a cash bidding war and will not change the June 23 cut-off date."
Under the Siemens-MHI offer, Siemens would buy Alstom's gas turbines business for 3.9 billion euros in cash while MHI would buy minority stakes in various Alstom power activities, to be held in three separate joint ventures, for 3.1 billion in cash. MHI is also offering to take a stake of up to 10 percent in Alstom from 29-percent shareholder Bouygues .
Kaeser and Miyanaga told reporters and lawmakers that their plan gave Alstom a future in both power and transport and aimed to make a "proud French icon" even stronger. Alstom makes France's distinctive TGV high-speed trains and supplies power equipment used in around 40 percent of nuclear plants worldwide.
Miyanaga also told French members of parliament he wanted France to take a matching 10-percent public stake in Alstom to demonstrate that the group would remain French. The government is willing to do so via state bank BPI, said an Alstom trade unionist who met Economy Minister Arnaud Montebourg on Tuesday.
Finance Minister Michel Sapin told Reuters he was not aware of such a plan. Bouygues said it had been contacted by MHI to take a stake alongside BPI, but that it had been approached neither by BPI nor the state. BPI declined comment. Montebourg's office did not respond to requests for comment.
Montebourg told trade unionists last week that the state and MHI were looking to take equal stakes in Alstom and a source familiar with the situation said BPI was "ready to be involved in any scenario", whether with Mitsubishi or GE.
Some labour representatives welcomed the Siemens-MHI plan, saying that, compared to the GE proposal, it would better preserve Alstom as a whole and came with a commitment to create 1,000 French jobs within three years and 1,000 apprenticeships.
In a statement, the CFE-CGC union said GE would now have to offer a more balanced deal with Alstom that would not dismantle the French group.
GE has meanwhile ramped up its charm offensive in the French media with ads saying an alliance with Alstom would create a global energy leader. It is offering to buy all of Alstom's energy arm, which includes its thermal power, renewable power and grid businesses and accounts for 70 percent of its revenue.
Alstom said it would examine the Siemens-MHI proposal in the coming days. A source close to the company said the Alstom board would make a decision by Monday, June 23, at the latest. The source further noted the GE proposal had the status of a binding offer, unlike the Siemens-MHI proposal.
Hollande's Socialist government has sought to negotiate better offers to preserve Alstom as a player in transport and energy, seeing both as vital national industries when unemployment is stuck above 10 percent and voters are increasingly turning towards the far-right.
Last month, it assumed new powers to block foreign takeovers in sectors deemed strategic.
The government's call for better offers comes as it battles with U.S. authorities to reduce penalties on France's biggest bank, BNP Paribas , for breaching U.S. sanctions on Iran and other states. However, French officials have not drawn a link between the two issues, in public at least.
Alstom shares closed down 1.24 percent, weighed down by the government intervention and uncertainty over a deal. Investors had initially welcomed GE's offer as a quick fix for Alstom's lack of critical mass in the international power market.
On Tuesday, some analysts said the Siemens-MHI offer could be more attractive for Alstom in valuation terms and noted it would leave the company controlling most of its existing power arm. Yet others argued the offer would result in a more complex outcome that gave priority to political concerns.
"GE's offer has the merit of being clear and coherent, something the Alstom board should appreciate," Aurel BGC strategist Tangi Le Liboux wrote in a note to clients. "The MHI-Siemens offer is designed to win over the government."
Union Investment fund manager Christoph Niesel said the current state of play was a "win-win situation" for Siemens, which stands to take Alstom's gas turbine arm: "Either it gets the gem of the portfolio at an acceptable price," he said.
"Or it has an elegant exit strategy."
(Additional reporting by Benjamin Mallet, Jean-Baptiste Vey and Yann Le Guernigou in Paris and Joern Poltz in Munich; Writing by Mark John and Natalie Huet; Editing by Sophie Walker and Alastair Macdonald)