GE-Alstom deal hangs on Bouygues stake sale to France

PARIS (Reuters) - Talks on an industrial tie-up between ALSTOM (ALO.PA)and General Electric entered a critical phase on Saturday, as the French government wrangled with Alstom shareholder BOUYGUES (EN.PA)over a key plank of the transaction.

Sources close to the negotiations said talks were continuing over the price at which the French state would acquire 20 percent of Alstom from Bouygues - a condition for government approval of Alstom's alliance with GE in preference to a rival Siemens-Mitsubishi offer.

The U.S. conglomerate's offer for key assets of transport and energy giant Alstom expires on Monday, but the sources said they were optimistic a final deal would be reached before then.

"Negotiations on price are always like this," one of the sources said. "We don't imagine for a moment that any of the parties would shirk their responsibilities in this alliance."

A statement expected from GE failed to materialize amid French media reports of a stalemate in the stake purchase talks.

GE and Alstom declined to comment, while a Bouygues spokesman did not return calls and messages.

French President Francois Hollande applied more pressure to Bouygues, telling reporters in Paris he expected rapid progress in the stake purchase talks.

"This is a major condition for the government's acceptance of the alliance," Hollande told reporters in Paris. "That's why I believe we will make progress by the end of the day."

Without an acceptable deal on the Bouygues stake, he added, "it would be necessary to reconsider the alliance as it has just been announced".

The battle over Alstom rapidly became politicized after initial reports in April of an imminent GE bid, with the government first weighing in to court a rival offer from Siemens, later joined by Mitsubishi Heavy Industries.

After revised offers from both bidders, Economy Minister Arnaud Montebourg finally announced state backing on Friday for a GE-Alstom deal valuing Alstom's energy business at 12.35 billion euros ($16.77 billion).

But the official green light remains subject to strict conditions agreed with GE as well as the government's successful purchase of a 20 percent stake from Paris-based Bouyues.

Montebourg said the French state was prepared to pay only market price for the Alstom shares, which closed at 28 euros on Friday - about 20 percent short of their accounting value to Bouygues. ($1 = 0.7366 euros)

(Additional reporting by Jean-Baptiste Vey, Benjamin Mallet, Chine Labbe; Editing by Janet Lawrence and Susan Fenton)

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