Siemens, Alstom poised to notify rail 'champion' deal to EU regulators

6 June 2018 3:29pm

5 June 2018. By Natalie McNelis and Nicholas Hirst

Siemens is set to notify the European Commission of its deal with rival Alstom to create a European rail “champion,” MLex has learned.

The notification of the plan to merge Siemens’ rail business with Alstom could come within the next week, it is understood. 

That would give regulators until mid- to late July to decide whether to open a full-blown inquiry. In the absence of extensions or pauses, the deadline for the phase II review would then fall near the end of November — leaving the parties little room for maneuver if they still hope to get approval in 2018. 

The combination raises obvious antitrust questions, since Munich-based Siemens and Alstom — based in Saint-Ouen, near Paris — compete head-to-head in the production of rolling stock and railway signaling equipment.

When it comes to high-speed trains, only a handful of other companies can compete with the duo, including Canada's Bombardier, Japan's Hitachi, and Spain's Patentes Talgo.

And then there’s China Railway Rolling Stock Corporation, CRRC, the world's biggest producer of rolling stock.
Whether European watchdogs allow Alstom and Siemens to join forces may depend on whether they are convinced that Beijing-based CRRC is nipping at their heels.

— High-speed competition —  

Siemens and Alstom have long been fierce competitors, for instance fighting over contracts to supply high-speed trains to Eurostar International — the subsea rail service that links London to Paris, Brussels and Amsterdam.

The commission’s 2013 review of Siemens’ acquisition of Invensys Rail noted several markets where Siemens and Alstom were both active, including point signals, relays and on-board units.

They are facing off again in the bidding for High Speed Two, the new UK government-funded project worth 3.15 billion euros ($3.7 billion). HS2 is tendering for 54 high-speed trains, as well as fleet maintenance.

Bombardier, Hitachi and Patentes Talgo are also in the running for the contract, due to be awarded in 2019. Alstom and Siemens will likely cite the healthy bidding for the HS2 project as an indication that significant competition will remain in the market to produce high-speed trains even after they merge.

But when it comes to projects of this magnitude, EU regulators may not be happy to see the field of capable suppliers shrink to four from five — particularly when we are talking about combining the two strongest players on the field. 

Whether markets are national, European or global will be one major question for the regulators, in particular in the sector for railway signaling. There, national requirements for certain signaling equipment make market entry more difficult, while standards have yet to be harmonized at the European level. 

— Global dynamics —

Siemens and Alstom say the EU also has to consider the emergence of CRRC as a competitive force. They say it has changed “global market dynamics," making their merger necessary. 

With revenues in 2017 of 27.6 billion euros and more than 180,000 employees, CRRC is a behemoth. It originally focused on its domestic market; now it’s increasingly looking abroad. 

The company has had some success in the United States, with projects in Boston, Philadelphia, Chicago and Los Angeles, but has yet to make significant inroads to the European market. 

While CRRC didn't bid on the HS2 project, it originally said it planned to. 

Siemens' boss Joe Kaeser has urged officials to "adopt a long-term approach" to assessing the "ability of foreign competitors to be able to enter into our markets."

Politically speaking, it may be an opportune moment to capitalize on a growing unease with the threat of competition from China. EU lawmakers specifically flagged “state-owned enterprises” — a thinly-veiled reference to China — in proposed legislation to screen foreign investments in EU companies.

But EU competition chief Margrethe Vestager has signaled that she may not be swayed by the argument that Europe needs to allow the creation of European champions to counter Chinese competition. 

In a speech in Paris in November, she stressed that public authorities shouldn't pave the way for European champions by sidelining regulatory considerations. While she wasn’t directly addressing the Siemens-Alstom merger, Bruno Le Maire, France's Minister of the Economy and Finance, was in the audience.

Le Maire had acclaimed the announcement by Siemens and Alstom in September, saying the combination would better allow the European companies to compete on the world stage.

The German and French companies said in March 2018 that they expect their deal to close by year end, but they may struggle to reach that target in view of the regulatory timeline.

Obtaining the commission's competition approval is likely to be their key regulatory hurdle.

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