China’s CRCC may be growing fast but the French and German companies dominate Europe and have orders worldwide. Siemens may now carve out and IPO its rail unit.
They've just missed the M&A train.
The stars are not aligning for the long-planned merger between France’s Alstom and Siemens’ rail technology unit. European Competition Commissioner Margrethe Vestager has significant concerns and seems likely to block the "Airbus on rails" when she announces her decision next month.
The companies are not willing to make further concessions to obtain approval after already agreeing to sell off signaling technology and to license older high-speed technology. A suggestion from the commission to license new high-speed train technology exclusively to a third party goes too far, industry sources say.
The opposition to the merger highlights once again the difficulty of balancing competition within Europe with the need to have strong companies that can compete globally – especially with China and the US.
German economics minister Peter Altmaier has urged creation of European champions to compete worldwide and his French counterpart, Bruno Le Maire, has said European competition policy is obsolete for taking such a narrow view.
According to an internal commission paper, however, Vestager believes there must be competition within Europe for companies to remain competitive elsewhere. National competition agencies, including Germany’s, share this view. However strong the Chinese rail giant CRCC may be, Siemens and Alstom continue to dominate the business in Europe.
The companies are already reconciled to the collapse of the merger. In presenting strong third-quarter results, Alstom executives for the first time publicly expressed doubt it would go through.
Wary of Beijing’s intentions, German business is pressing the EU to loosen competition rules to boost its corporate might against Chinese rivals.
The consequences for Siemens are not likely to be significant, in any case. Its rail unit is doing well and a 10-percent return on sales makes it more profitable than its competitors, which include Bombardier from Canada and Stadler from Switzerland. Given Siemens’ new plan to break into operating units, the rail operations likely won’t be reintegrated into the company. An initial public offer is more likely, like that of Siemens medical technology unit Healthineers.
Alstom, too, as indicated by its third-quarter results, is doing quite well on its own. There is no evidence of the lurid picture of Chinese inroads painted by French authorities. Alstom currently has projects in Morocco, Dubai, Sydney and South Africa, boosting sales by 10 percent to €2 billion in the third quarter alone. It has €40 billion of orders on its books, enough to keep it busy for years.
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