To Counter China’s CRRC, Alstom, Siemens To Merge Rail Businesses

Creating a European champion to better withstand the international advance of China’s state-owned CRRC, German industrial group Siemens and French rival Alstom agreed to merge their rail operations.

While Alstom will supply Henri Poupart-Lafarge as chief executive, helping to counter criticism that France is giving up control of another national industrial icon, Siemens will own 50 percent plus a few shares of the joint venture, to be called Siemens Alstom.

Siemens will supply the non-executive chairman will come from Siemens.

A Franco-German industrial breakthrough for French is the framework deal, which still has to be approved by Alstom shareholders as well as regulators.

TGV high-speed train is a symbol of national pride for France that has highlighted French engineering skill – and possible job losses and the worries of some politicians there is on France losing control of its TGV high-speed train.

The French government welcomed the planned tie-up, said Finance Minister Bruno Le Maire.

It would not exercise an option to buy a 20 percent stake in Alstom from industrial group Bouygues, the French state said.

In addition to signalling and rail technology, the iconic French TGV and German ICE high-speed trains are among the business that the Siemens and Alstom transport businesses has.

Earnings before interest and tax of 1.2 billion euros and sales of 15.3 billion euros ($18 billion) is the output of the combined entity.

“This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term,” said Siemens CEO Joe Kaeser.

Alstom’s Poupart-Lafarge said: “Today is a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation.”

Saying extracting cost savings from the deal could be tricky, analysts at Deutsche Bank kept a “hold” rating on Alstom shares.

“Politicians will also likely try to ensure some form of jobs protection in France (28 percent of Alstom’s workforce) and Germany (39 percent of Siemens’workforce), making cost synergies difficult to extract,” they wrote in a note.

Siemens Mobility, the rail and infrastructure division of the German conglomerate, Alstom and Bombardier Transportation combined, is smaller than China’s CRRC, with annual revenue of about $35 billion.

It is eyeing the United Kingdom’s High Speed 2 project, which will connect London with cities in the north of England and it has won projects in Britain and the Czech Republic in the past year even though it was previously focused on China.

He believed the scale of China’s CRRC left little room for regulators to oppose a deal, Siemens CEO Kaeser said ahead of the signing of the memorandum of understanding.

“It always depends, but the facts are that there is a dominant player,” he told Reuters in an interview in New York.

Since all of Alstom’s divisions deal with the railways and transportation industries, Siemens stands to gain control of Alstom’s main business.

(Adapted from CNBC)

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