By Natalie Huet and Julien Ponthus
PARIS (Reuters) - General Electric (GE) (GE.N) strengthened its position in the battle for the power arm of French group Alstom (ALSO.PA) on Wednesday with a pledge to create new jobs in France and recognition from Paris that it had made a more acceptable offer.
GE Chief Executive Jeff Immelt promised 1,000 new engineering and manufacturing jobs within three years of a deal when he met French President Francois Hollande in the morning, said two sources close to the talks who asked not to be named because the matter has not been announced by the U.S group.
"Today we can see that GE's offer has been detailed, improved, strengthened," an official at Hollande's office said separately, adding however that there was still "some work to be done".
The comments signaled a change of tone from the French government, which had been heavily critical of the U.S. conglomerate's $16.9 billion bid for Alstom's power arm for fear of the impact on French jobs and industrial know-how.
It had promoted instead a European tie-up with Germany's Siemens (SIEGn.DE) and even passed a decree earlier this month to give itself an effective veto on any deal.
Alstom, which is famous for making France's iconic TGV high-speed trains, is a big private-sector employer in the country and was bailed out by the state a decade ago.
Saxo Bank analyst Christopher Dembik said French Economy Minister Arnaud Montebourg appeared to be getting his way in forcing GE to come up with a better offer for Alstom, though he warned other potential bidders for French firms might be deterred by the government's tactics.
"It's a clever game of poker in the short run for Arnaud Montebourg, but that could have harmful consequences in the medium and long run, particularly in relation to Anglo-Saxon investors who are wary of state intervention in economic affairs," he said.
"It's not unlikely that investors will now think twice before showing interest in a French industrial jewel."
Shares in Alstom rose as much as 1.9 percent on hopes for progress towards a deal with GE. Alstom management and investors have welcomed the U.S. company's bid, saying it would give Alstom cash to pay its growing debts and the critical mass it lacked in a difficult global power market.
The chairman of Siemens France said on Tuesday the German group hoped to make a formal offer by June 16 to buy most of Alstom's power assets and in exchange give up its own trains business, but that it was still weighing the opportunities and risks of a tie-up.
Meanwhile GE has extended its offer until June 23 at the request of the French government. With Alstom, GE sees a chance to push on with a renewed focus on its engineering and industrial roots, expand its installed base of power turbines, and increase exposure to emerging markets.
"Jeff Immelt is showing how serious he is about the transaction. He's getting himself involved hands-on, playing a good political game ... whereas Siemens doesn't appear to be as serious about the deal," said Nomura analyst Daniel Cunliffe.
GE declined to comment on the pledge to create 1,000 jobs. It currently employs around 10,000 workers in France, and Alstom's power business around 9,000.
"We had a constructive discussion about the details of our proposed alliance with Alstom. We have made progress and look forward to the conclusion of this process in the next few weeks," a GE spokesman said in an emailed statement.
Siemens declined to comment. Siemens France chief Christophe de Maistre told French lawmakers on Tuesday that if it were to pursue a bid following the due diligence process, Siemens would guarantee jobs for Alstom workers joining the German firm during three years following completion of a deal.
The French government is not only keen to preserve French jobs, but also the country's energy independence. Alstom is a supplier of turbines for nuclear plants worldwide, and Paris is concerned that a sale of its power arm could hurt France's position in the energy sector.
On Tuesday evening, Immelt told French lawmakers GE would make detailed commitments to increase jobs in France and was in "constructive" talks with the government to secure French access to Alstom's nuclear-related assets.
He also said GE was considering giving control of its rail signaling business to Alstom, addressing concerns that a straight sale of the power arm would weaken the French group by reducing it to its smaller rail unit - which currently accounts for under 30 percent of group revenue.
If GE handed over its high-margin rail signaling business to Alstom, that would boost Alstom Transport's revenue by about 20 percent and its earnings by about 50 percent, according to Nomura's Cunliffe.
"That makes it politically a bit more palatable, from a French standpoint. And that would give Alstom latitude to use its cash to go out and make other acquisitions," he said.
A spokeswoman for Alstom declined to comment beyond saying its board was studying in depth GE's offer.
(Additional reporting by Alexandre Boksenbaum-Granier in Paris and Jens Hack in Munich; Editing by Mark Potter and Pravin Char)