Siemens, Alstom on brink of rail merger

Posted September 28, 2017

Alstom SA's merger with the train-making arm of Siemens AG will mark the end of a bitter rivalry as the European rail industry's biggest adversaries unite in an effort to fend off the challenge from China and Japan.

After more details of the deal were released on Wednesday, shares of Siemens were up 2 percent while Alstom shares were up 6.2 percent.

On the railway deal, France's finance ministry said it had secured a commitment from Siemens to safeguard Alstom's French manufacturing plants and jobs for a four-year period after the deal closes.

The companies have combined sales of 15.3 billion euros (about $18 billion) before interest and tax of 1.2 billion euros (about $1.4 billion).

Siemens Chief Executive Joe Kaeser told a news conference that of course there would be redundancies but that he saw these more in administrative and back-office functions than in engineering. "A dominant player in Asia has changed global market dynamics".

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The ill-tempered contest between Alstom and Siemens has been a feature of the sector for decades and reached a boiling point in 2011, when the pair engaged in a public spat over the safety of competing high-speed models they were pitching to Channel Tunnel express operator Eurostar International Ltd. The Mobility Solutions business will be run out of Berlin. To ensure management continuity, Henri Poupart-Lafarge will continue to lead the company as CEO and will be a board member.

The deal leaves out in the cold Canadian transportation group Bombardier, which also held talks with Siemens, sources have said, and which faces a separate battle this week to protect jobs in Quebec and Northern Ireland.

The French government, which owns around 20 per cent of Alstom, will ditch its stake as part of the deal. Customers will significantly benefit from a well-balanced larger geographic footprint, a comprehensive portfolio offering and significant investment into digital services. The French state will no longer have a role in the new company.

Both Siemens' and Alstom's boards have given the thumbs up to the merger. Bouygues has committed to keep its shares until the earlier of the extraordinary general meeting deciding on the transaction and July 31, 2018. It is estimated that synergies will be of 554,2 million U.S. $for four years after the closing of the transaction.