German industrial group Siemens is likely to decide on Tuesday to pursue a multi-billion dollar rail merger with French rival Alstom rather than Canada’s Bombardier, two sources familiar with the matter told Reuters.
The three major European train and rail technology groups have been looking at combining their businesses as larger Chinese state-backed rival CRRC Corp embarks on a global expansion.
“I think Alstom will make it,” one of the people said on Monday. The second person said the Siemens’ supervisory board would decide the matter on Tuesday, also describing Alstom as the front-runner.
Siemens, Alstom and Bombardier declined to comment.
Siemens and Alstom are strong in high-speed intercity trains with their ICE and TGV models. Siemens is also the leader in signaling technology, while Bombardier, whose transportation headquarters are in Berlin, is stronger in commuter and light-rail trains.
The Franco-German deal would come just as plans by German Chancellor Angela Merkel and French President Emmanuel Macron for closer integration may be undermined by Merkel’s weak showing in Sunday’s national election.
It would also represent a reconciliation of sorts between Siemens and Alstom, which snubbed the German company in 2014 to sell its energy division to General Electric in a deal that also saw Paris take a 20 percent stake in Alstom.
Siemens Mobility is expected to be merged into Alstom, in which Siemens would hold 50 percent-plus-one share, while the chief executive would be Alstom’s current boss Henri-Poupart Lafarge.
“It’s important for French authorities that the terms are balanced, that includes the role of CEO,” a source familiar with the matter said.
The non-executive chairman will be appointed by Siemens, another source close to the matter said. The accord will also include a 4-year commitment on job retention, the same source said.
The combined business would have sales of about 15 billion euros (US$18 billion). That compares with CRRC’s sales of 230 billion yuan (US$35 billion) and market value of US$40 billion.
Blow to Bombardier
The decision would be a blow for planes-and-trains maker Bombardier, which faces a separate battle this week to protect aerospace jobs in Québec and Northern Ireland amid a subsidy row with Boeing.
Sources have told Reuters that Siemens sees Alstom as financially more stable than Bombardier, which also would have wanted to have control over a transportation joint venture, something Siemens was reluctant to cede.
Bombardier shares fell sharply on Friday after a report that Siemens was in advanced talks with Alstom.
Any combination of the three would carry considerable regulatory risks, said competition lawyer Martin Gramsch of law firm Simmons & Simmons, adding they would likely argue for the market to be considered globally to take into account the competitive threat from CRRC.
“The market for larger jets has been defined as a world market. But, for trains, markets have traditionally been described as national or European because of the different requirements such as gauges and voltages,” he told Reuters. “A broader definition would make it easier for the parties.”
Siemens’ shares were up 0.2 percent by 1350 GMT on Monday, while Alstom’s were up 0.8 percent.
Update: Caisse de dépôt et placement du Québec owns 30 percent of Bombardier’s rail business. The Canadian pension fund made a $2.1 billion (US$1.5 billion) convertible share investment in the unit in 2016.
By Alexander Hübner, Georgina Prodhan
(Additional reporting by Maya Nikolaeva and Tim Hepher Gwenaelle Barzic, Jean-Baptiste, Cyril Altmeyer Vey in Paris and Allison Lampert in Montréal; Editing by Arno Schuetze, Victoria Bryan, Mark Potter and Jane Merriman)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Luc Moleux