Rail merger set for an­titrust reviews

China Daily (Canada) - - FRONT PAGE - By LAN LAN lan­lan@chi­nadaily.com.cn

The merger of China’s two big­gest rolling stock pro­duc­ers faces in­tense an­titrust scru­tiny around the world, an­a­lysts said, with the com­bi­na­tion of CSR Corp Ltd and CNR Corp Ltd likely to cre­ate the globe’s largest train­maker by sales.

The Ger­man Fed­eral Car­tel Of­fice, for ex­am­ple, said on its web­site that the agency re­ceived a no­ti­fi­ca­tion of the merger on Jan 5.

The two com­pa­nies may have sub­mit­ted pre-merger no­ti­fi­ca­tions to more in­ter­na­tional an­titrust agen­cies and the case may need to be re­viewed by more coun­tries as the size of the deal will af­fect re­lated mar­kets, said an­a­lysts. Nei­ther company could be reached for com­ment.

The merger will cre­ate a company with about $31 bil­lion in rev­enue, which ex­ceeds the three largestWestern play­ers’ rev­enues com­bined, said a Moody’s In­vestors Ser­vice Inc re­port. CNR gen­er­ated 96.8 bil­lion yuan ($15.4 bil­lion) of rev­enue in 2013, while CSR re­ported sales of 96.5 bil­lion yuan.

By com­par­i­son, the rev­enue of Ger­many-based Siemens AG to­taled $9.2 bil­lion in its most re­cent fis­cal year. Canada-based Bom­bardier Inc re­ported $8.8 bil­lion of sales and the fig­ure for France­based Al­stom’s trans­porta­tion equip­ment di­vi­sion stood at $7.5 bil­lion.

The two Chi­nese com­pa­nies have won con­tracts for re­gional and com­muter trains in South­east Asia and other emerg­ing mar­kets in re­cent years, said Zou Jim­ing, a Shang­hai-based an­a­lyst at Moody’s.

CNR won a $570 mil­lion con­tract to sup­ply pas­sen­ger cars to Bos­ton’s sub­way sys­tem last year, Chi­nese man­u­fac­tur­ers’ first US rolling stock or­der.

Both com­pa­nies have yet to win rolling stock con­tracts in the Euro­pean mar­ket since the re­gion has ma­ture man­u­fac­tur­ers and strin­gent re­quire­ments for mar­ket en­try. Asian play­ers such as Ja­pan-based Hi­tachi Ltd’s Hi­tachi Rail and South Kore­abased Hyundai Mo­tor Co’s Hyundai Rotem have been able to gain a slice of the mar­ket, ac­cord­ing to an­a­lysts.

Deng Zhisong, an an­titrust at­tor­ney with Beijing-based Dacheng Law Of­fice, said that an in­ter­na­tional merger needs to be stud­ied case-by-case and coun­tries will reach dif­fer­ent an­titrust con­clu­sions about one trans­ac­tion.

“Given the size of the trans­ac­tion, the process might be very time-con­sum­ing, but I think the re­sults would be rel­a­tively op­ti­mistic,” said Deng.

For the US and Euro­pean mar­kets, where the rail and mass tran­sit in­dus­tries have be­come highly con­cen­trated, new­sup­pli­ers like the Chi­nese com­pa­nies with cost ad­van­tages will be ben­e­fi­cial for full com­pe­ti­tion.

That is not


a neg­a­tive fac­tor by lo­cal reg­u­la­tors, so they might also ob­tain clear­ance in th­ese mar­kets, said an an­a­lyst who de­clined to be iden­ti­fied due to the sen­si­tiv­ity of the is­sue.

Huang Yong, deputy head of the ex­pert ad­vi­sory group of the State Coun­cil’s Anti-mo­nop­oly Com­mit­tee, said it is dif­fi­cult to fore­cast the re­sults of th­ese reviews.

The an­a­lyt­i­cal meth­ods adopted by an­titrust agen­cies are very com­plex, and they con­duct a thor­ough study of com­pa­nies’ shares in each mar­ket seg­ment, such as light rail, sub­ways, high-speed sys­tems, com­muter ser­vices and lo­co­mo­tives, Huang said.

This case should also be re­viewed by China’s an­titrust agen­cies, said an­a­lysts.

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