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Alstom, Siemens in talks to merge rail ops
September 22, 2017 / 12:28 PM / in a month

Alstom, Siemens in talks to merge rail ops

A logo is seen on the facade of the main plant of the French engineering giant Alstom SA in Belfort, France, September 15, 2016. REUTERS/Jacky Naegelen

PARIS/MUNICH (Reuters) - French train maker Alstom and German engineering group Siemens said on Friday they were in talks about a tie-up of their rail activities as European companies struggle to cope with competition from China.

A deal between Siemens and Alstom would mark the first industrial Franco-German alliance under President Emmanuel Macron as he pushes for greater European economic integration.

Rail mergers have become a trend over the last few years as companies seek to contain costs and compete with China’s state-backed CRRC (601766.SS).

The French government said it approved of a tie-up between the rail businesses, which have combined sales of nearly 15 billion euros ($6 billion), as long as jobs were not affected.

“It is important that we can strengthen our industrial sectors ... in partnership with Germany,” government spokesman Christophe Castaner told journalists.

The government took control of a 20 percent voting stake in Alstom as part of a 2014 deal that saw the group sell its energy division to General Electric, snubbing Siemens at the time.

It has until October to exercise an option to buy that stake from construction group Bouygues.

While the French government looks on the potential deal with a positive eye, it would also closely watch the impact on corporate governance and research and development, a French source said.

“It would be a balanced marriage between the French and the Germans, the French government will want to ensure that this balance is maintained,” the source said, adding that combining two businesses would make the group competitive in a wider market.

ALSTOM OR BOMBARDIER?

Siemens has held discussions with both Alstom and Canadian group Bombardier, a person familiar with the matter told Reuters on Thursday.

Earlier on Friday, Le Monde newspaper reported Siemens could announce a deal with Alstom as early as Sept. 26.

Siemens would contribute to the deal rail assets valued at 7 billion euros ($8.4 billion) in return for a 45-50 percent stake in Alstom, according to that report.

A source familiar with the discussions told Reuters on Friday that if the deal with Alstom goes through, Siemens would have a slight majority but Alstom’s French CEO Henri Poupart-Lafarge would head the merged company.

“The prospects are better with Alstom,” another source with knowledge of the situation said. “Everything is still open, there’s a lot of movement.”

Alstom is in a stronger financial position than Bombardier, the second source said. Bombardier also wanted control of the new group which was not acceptable to Siemens.

A Bombardier spokesman declined to comment. A Siemens spokesman confirmed talks with Alstom but declined to comment on Bombardier.

Alstom and Siemens confirmed talks were under way after the close of financial markets on Friday in Europe. Bombardier’s shares were down 4.6 percent at 1719 GMT in Toronto.

“Assuming a solution can be found that both parties can agree to and anti-trust authorities allow the merger to proceed, there would be a significant opportunity to create an even stronger global signaling leader and take out costs,” analysts at Barclays said in a note.

Reporting by Jean-Baptiste Vey and Bate Felix in Paris, Alexander Hübner in Munich and Georgina Prodhan in Frankfurt; Writing by Maya Nikolaeva and Leigh Thomas, Editing by Jane Merriman and Elaine Hardcastle

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