Siemens and Alstom agree to merge rail businesses

Report by Keith Fender

AFTER months of speculation concerning a merger or joint venture between Siemens and Bombardier (discussions that were never confirmed by Siemens publically) Siemens and Alstom announced late on 26 September that they had agreed a merger of the two company’s rail engineering businesses. Hastily arranged news conferences the next day in Paris provided much more detail.

Siemens and Alstom say they are joining forces to create a “European Champion in Mobility” in particular to take on Chinese competitor CRRC which is already twice as big a company as the new company which will be called Siemens-Alstom. The new company will be based in Paris, as will its rolling stock business, although its signalling and digital services division will be headquartered in Berlin. Siemens will include it’s Mobility division (rolling stock and signalling) plus its rail traction drives business based in Germany which until now has been part of its Industrial Large Drives division. All of Alstom will be included; the French group sold all its non rail power generation business to US company GE in 2014.

The new Siemens-Alstom company is expected to have revenue of €15.3 billion and profits before tax of €1.2 billion in 2018 when the deal will be finalised. Cost savings of €470 million are planned by 2022 – most of which will come from reduction in management and support staff rather than factory closures or changes.

Mr Joe Kaeser Siemens CEO described the deal agreed as a “transformational transaction for the global mobility industry” and in discussion with investment analysts on 27 September said the shareholding of Siemens in the new company will by 50.67% when it is finalised – expected by December 2018, giving Siemens managerial control. Siemens will not pay any cash as part of the deal but will contribute the Siemens Mobility business plus the rail traction drives business to Alstom in return for newly issued shares from the new Siemens-Alstom company.

Six of the eleven company directors will be appointed by Siemens including a new Chairman for the company. Four independent directors will be appointed and the existing Alstom CEO Mr Henri Poupart-Lafarge will run the new merged company.

The proposed merger is subject to a wide range of regulatory approvals with formal consultation amongst Alstom’s employees in France being the first major step. Anti-trust approval will also be needed in multiple countries although Alstom and Siemens manufacturing sites are largely in different countries except Germany, Russia and the USA where both companies have major plants or shareholdings in competing companies. In the UK neither company currently has a train manufacturing plant although both have previously hinted they might establish one for HS2 or other big orders; both Siemens and Alstom have extensive service contracts in the UK with passenger TOCs (e.g. Alstom and VWC for the Class 390 Pendolinos or Siemens and GTR for the Class 700 Desiro City trains and SWR for the Class 450/444 Desiro EMUs).

Until the deal is finalised there remains a possibility it could not happen – if Alstom were to decide to now not pursue the transaction it would have to pay a €140 million break-fee to Siemens.