PARIS (Reuters) - German industrial group Siemens AG (SIEGn.DE) and French rival Alstom SA (ALSO.PA) agreed to merge their rail operations, creating a European champion to better withstand the international advance of China’s state-owned CRRC Corp Ltd (601766.SS).
Below are some initial analyst views on the deal.
Siemens-Alstom targets annual synergies of 470 million euros (412.89 million pounds) after four years, which looks overly ambitious, in our view.
We estimate the bulk of synergies would come from the signalling business and that there could actually be some dissynergies in rolling stock (clients seeking to diversify their supplier base; re-sale of assets to competitors under EC anti-trust remedies, etc).
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.
While the track record is mixed (i.e. Franco-German joint venture Areva NP) and large challenges lie ahead (lifting synergies including potential layoffs in France and Germany) the announced merger of Siemens’ railway business with Alstom to establish a “European champion” is a strategic move that has to be seen against the backdrop of increasing international competition over the past decade.
Over the past years Siemens has strengthened its negotiation position for its railway business (mobility division) by building up a solid order backlog as well as bringing profitability in-line with the target range. Our first impression is that the agreement with Alstom is slightly less unfavorable for Siemens shareholders than we had expected.
Reporting by Reuters Paris and Frankfurt newsrooms, editing by Louise Heavens