July 21, 2017 / 1:17 PM / a month ago

Siemens, Bombardier near deal on transportation tie-up, sources say

FILE PHOTO: New Siemens AG headquarters are seen in Munich, Germany, June 14, 2016.Michaela Rehle/File Photo

FRANKFURT/MONTREAL (Reuters) - Canada's Bombardier (BBDb.TO) and Germany's Siemens (SIEGn.DE) are in the final stages of talks to combine their rail operations, several sources familiar with the matter said on Friday, in a deal that would give the two added heft to compete against Chinese rail giant CRRC (601766.SS).

The deal, which would create two separate joint ventures for their signalling and rolling-stock divisions, could be announced as early as August, the sources said.

Siemens' supervisory board will discuss the matter at its meeting on Aug. 2, while Bombardier's board is expected to consider it before the company's second-quarter earnings call next week, the sources said, adding that an announcement could come in early August.

All of the sources, including one who talked to Reuters earlier in the week, spoke on condition of anonymity because the talks are confidential.

Rail consolidation has been a trend over the last few years, as global companies seek to contain costs and Western companies struggle with the rising ambitions of China's state-backed CRRC at home and abroad.

Media reports in April that Siemens and Bombardier explored a combination with total sales of $16 billion had sparked antitrust concerns in Europe.

Bombardier would take just over a 50 percent stake in the joint rolling stock operations, one source said. Siemens would take roughly an 80 percent stake in a joint venture in the higher-margin signalling technology, two of the sources said.

While a deal could be a "win-win" for both companies, any agreement that largely cedes control over Bombardier's lucrative signalling business to Siemens, the market leader, could worry the Canadian company's investors, an analyst said.

A logo of jet manufacturer Bombardier is pictured on their booth during the European Business Aviation Convention & Exhibition (EBACE) in Geneva, Switzerland, May 22, 2017.Denis Balibouse

Nevertheless, a tie-up could help Bombardier, the rail industry's fifth-largest signalling player by market share, grow that business, the analyst said.

Bombardier and Siemens declined to comment.

No money would be exchanged as part of the deal, two of the sources said. It was not yet clear what role Caisse de depot et placement du Quebec, which owns a 30 percent stake in Bombardier Transportation, would play in the deal.

A spokesman for the Caisse, Canada's second-largest pension fund, would not comment on Friday.

Caisse Chief Executive Officer Michael Sabia told Reuters in June that he supports rail consolidation in general to create value and "to begin levelling the market," given CRRC's size advantage.

The proposed deal would also address antitrust concerns and fears that a tie-up would result in job losses.

The companies have offered extensive job guarantees to get backing from the strong German labour side, two of the sources said. Bombardier and Siemens also would have to sell off some high-speed train operations to address the antitrust concerns.

The advisers for Siemens are Goldman Sachs and BNP Paribas, and UBS for Bombardier. The banks declined to comment or were not immediately available for comment.

Siemens shares fell almost 2 percent while Bombardier was unchanged.

Additional reporting by Alexander Huebner and Georgina Prodhan in Frankfurt, Irene Preisinger in Munich and Matt Scuffham in New York; Editing by Georgina Prodhan and Jeffrey Benkoe

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