Alstom must now seek partners from overseas

The company is trying to repair itself after a string of business disasters.

At the same time, the firm announced a loss of 1.84bn euros for 2003, much bigger than analysts had predicted.

The rescue plan agreed between the French government and the European Union also demands Alstom seek partnerships with other firms.

In a news conference on Monday, European Competition Commissioner Mario announced that the two sides had finally settled their differences.

The deal "is in my view an excellent basis to safeguard Alstom's industrial future", he said.

Alstom's shares were barely changed following the announcements.

State stake

When Alstom's troubles first became serious - in the wake of accounting irregularities in the US, a cruise ship client going bust and a plague of faults in its gas turbines - France wanted simply to bail the firm out with 3.4bn euros of state money.

Mr Kron is steadfastly opposed to any idea of a break-up

But the European Commission blocked the move, and only now has finally signed off a replacement package.

The deal includes a commitment to sell 1.6bn euros of assets.

It centres on a rights issue of 1-1.2bn euros - to which the French state will subscribe 185m euros - a 500m-1.2bn euro swap of debt for shares, and the exchange by the state of 300m euros in bonds for shares.

That would give the French state 31.5% of the company.

Break-up?

But the European Commission's approval is contingent on the most fiercely contested part of the deal: a commitment to sell much of the French government's stake to a partner within four years.

That will not mean the firm's break-up, chief executive Patrick Kron said.

He also dismissed speculation that Germany's Siemens would be the chosen suitor, despite an imminent meeting between French President Jacques Chirac and German Chancellor Gerhard Schroeder to talk about industrial policy.

However, Mr Kron's comments could do little to soften the blow of the losses, which were 50% more than analysts had bargained for.