German industrial giant Siemens has signed a deal to merge its railway operations with French competitor Alstom. The firms aim to establish a viable challenger to take on China's state-owned CRRC.
Germany industrial group Siemens AG and France's Alstom SA on Tuesday announced plans to merge their rail operation businesses, in a move seen as an industrial breakthrough for French President Emmanuel Macron.
The merger of the two rivals will tie together the iconic French TGV and German ICE high-speed trains, along with each group's signaling and rail technology arms.
The newly forged entity will boast more than 15.3 billion euros ($18 billion) in turnover and earnings of up 1.2 billion euros before interest and taxes.
The framework deal will see Siemens own 50 percent of the shares while Alstom will install its CEO, Henri Poupart-Lafarge, as the head of the new company. The new entity's global headquarters, rolling stock business and stock market listing, to be called SiemensAlstom, will be in Paris, while the signaling and technology arm of the company will be based in Berlin.
Siemens said it expects to make savings of up to 470 million euros ($550 million) by the fourth year of the merged company's operation, which is expected to begin at the end of 2018.
Although the deal still had to be approved by Alstom shareholders, the companies said it had received the unanimous backing of Alstom's board, Siemens' supervisory board and Alstom shareholder Bouygues, another French industrial group.
Countering China's advances
In a statement issued by Siemens and Alstom, the firms said the new rail company's global presence will help it gain access to key growth markets in the Middle East, India and China, as well as in the United States and Russia.
"We are putting the European idea into practice and, together with our friends at Alstom, we are creating a new European champion of the railway industry in the long term," Joe Kaeser, Siemens president and CEO, said in a statement.
However, Tuesday's merger mainly comes in response to a similar deal in China that saw its two largest state-owned train manufacturers come together to forge the giant CRRC in 2015.
The Chinese rail company has already ventured into Europe, winning projects in Britain and the Czech Republic. It is also reportedly eyeing the UK's High Speed 2 project, a large rail network that will connect London with cities in the north of England.
As a result, Europe's rail companies have been facing significant competitive pressures. Kaeser has repeatedly pushed for greater cooperation among Europe's rail companies, and given the scale of CRRC, he said there was little room for regulators to oppose the Siemens-Alstom deal.
While the French government has come out in support of the deal, several opposition lawmakers and trade union activists have voiced their apprehension. Most concerns have centered on the risk of France losing control of a national industry by handing its TGV trains over to a German company.
French right-wing politician Nicolas Dupont-Aignan and far-right National Front Secretary-General Nicolas Bay both decried the deal as being more favorable to Germany, while Eric Woerth of the right-wing Republicans posted on Twitter: "Is this now the end of Alstom? Will TGV become German? Why does the government accept such an imbalance?"
A branch of the CFDT trade union, which represents Alstom workers, accused President Macron of abandoning the French industrial giant.
However, in a statement to news agency Reuters, analysts at Exane BNP Paribas, a French investment bank, said the merger would offer better growth prospects to Alstom than if it remained a standalone company and that "value creation would be limited for Siemens but material for Alstom."
dm/cmk (Reuters, dpa)