France chose General Electric to form an alliance with Alstom on Friday - rejecting an offer from Siemens and Mitsubishi Heavy Industries - but said the deal still needed some work and added it would buy a 20 percent stake in the hotly-contested company.
Economy Minister Arnaud Montebourg said he had used a newly- created state decree to reject both of the existing offers as not being in France's strategic interest, and had formulated fresh demands to GE Chief Executive Jeff Immelt.
The decision ended weeks of suspense surrounding one of Europe's fiercest industrial battles in years, but left open major questions about the final shape of an alliance which GE hopes will give it access to new power markets.
"The points we have raised with General Electric are precise and technical but necessary," Montebourg told a news conference after two days of talks involving the bosses of the three suitors, President Francois Hollande and top ministers.
He said France had demanded strict conditions "guaranteeing energy independence, job creation on national territory and maintenance of decision-making centres in France".
He said the offer from Siemens and Mitsubishi Heavy Industries (MHI) was "very serious" and that he had personally backed it, but that the government "had made up its mind".
Montebourg added that he understood the Alstom board would meet later on Friday and give its view.
Alstom, GE and Siemens all declined to comment.
Montebourg confirmed that Alstom's lucrative gas turbines arm would be purchased by GE and said there would be discussions on the shape of joint ventures in other energy areas ranging from renewables to nuclear.
He said the French state would come in as the top shareholder in Alstom by purchasing a 20 percent stake in it from Bouygues, currently the holder of 29 percent.
The government and Bouygues have yet to agree on the price of the stake, sources with knowledge of the talks said. Based on Alstom's current market capitalization, a 20 percent stake would be worth 1.7 billion euros ($2.32 billion).
A Bouygues spokesman declined to comment.
GE will sell its rail signaling business to Alstom as part of plans to strengthen the transport activities of the French group, maker of the famed TGV high-speed trains.
Montebourg said the signalling business was valued at "one billion dollars or euros, I am not sure". He gave no other valuation details during the news conference.
Alstom's sensitive nuclear activities will be held in a 50:50 venture with GE in which the French state would have a "golden share" giving it a veto, said the economy minister, a self-styled "economic patriot" from the French left.
Alstom suffered more than bigger rivals from the 2008 economic crisis, which depressed electricity demand and caused a slump in the market for new power plant equipment, hitting its cash flow and ability to service debt.
But its assets are valuable to rivals slugging it out in a tough market. Linking up with Alstom will allow GE to provide turbines for power stations and technology for electricity grids - something Siemens, eyeing Alstom's high-margin gas turbines for itself, and MHI wanted to prevent because it makes their U.S. rival even stronger.
However analysts said that GE and Siemens both stood to benefit, regardless which one of them won the bid, as any deal would remove a competitor from the market that had been pushing down prices in a bid to grow its business. Alstom is the No.3 player in gas turbines after GE and Siemens, with a global market share that is estimated to be below 10 percent.
"Siemens should not be at a major disadvantage if GE buys the gas business," DWS fund manager Marcus Poppe told Reuters.
GE had radically overhauled its bid on Thursday, hoping to appease unions and politicians by transforming what had been largely a straight purchase into an offer of joint ventures similar to that of Siemens-MHI.
In response Siemens-MHI added 1.2 billion euros ($1.64 billion) to their offer for Alstom's energy business on Friday - taking their cash component to 8.2 billion - and simplified the structure of the deal, hoping to see off GE ahead of Monday's deadline for an Alstom board decision on the company's fate.
Siemens said its offer, which valued Alstom's power businesses at 14.6 billion euros, well above GE's 12.4 billion, was "superior industrially, financially and socially," and reaffirmed pledges to create new jobs in France, a commitment GE has also made.
Emerging from talks with Hollande, Siemens CEO Joe Kaeser said he was "very grateful" that the president had heard his pitch and added: "We will respect every decision."
Hollande's government blocked GE's initial advances on Alstom some two months ago and forced it to improve its offer by encouraging Siemens to enter the fray and giving itself the power to block industrial tie-ups in strategic areas.
Yet sources involved in the back-room discussions over the past seven weeks said it was not clear whether there was a single government line: Several union representatives of Alstom and political sources told Reuters the saga had drawn a divide between Montebourg, who they said lent towards the Siemens-MHI plan, and Hollande, in favour of GE.
While no one has publicly drawn a link between the two cases, Hollande is also lobbying U.S. authorities to reduce the penalties which France's biggest lender, BNP Paribas, faces for breaching U.S. sanctions in 2002-2009, notably its dollar-financing of oil trade out of Sudan. ($1 = 0.7336 Euros) (Additional reporting by Joern Poltz in Munich, Elizabeth Pineau in Paris and Maria Sheahan in Frankfurt; Writing by Mark John; Editing by Sophie Walker)
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