Bombardier and Siemens to discuss merging rail operations.
Bombardier, Siemens said to discuss merger
Siemens AG and Bombardier Inc. are in talks to combine their rail operations, according to people familiar with the matter, potentially creating a business that could better fend off increasing competition from China.
The proposed joint venture, which could be worth at l east 10 billion euros ( US$ 10.6 billion), would merge the firms’ train- making and signalling activities, said the people, asking not to be identified because the discussions are private. A deal could come by the middle of the year, one of the people said.
No final decisions have been made and any combination would require clearance from antitrust authorities and face potential opposition from unions, they said. Representatives for Siemens, which has headquarters i n Munich, and Montreal-based Bombardier declined to comment.
Combining t he Bombardier and Siemens businesses would create a rail powerhouse better able to rival industry leader CRRC Corp. of China, f ormed from a 2015 merger of the country’s two main regional train makers. CRRC has been snapping up contracts worldwide, aided by an ability to finance entire projects. The move would also help fend off challenges in Europe, which has become the fastest growing rail market as governments seek to ease crowded roads and reduce carbon emissions.
Talks between Bombardier and Siemens started earlier this year, the people said. Analysts f r om Societe Generale have valued Siemens’s mobility unit at about 7.2 billion euros, while Veritas Investment Research Corp. has said Bombardier’s 70 per cent stake in its transportation business is worth at least US$5 billion.
Bombardier sold a 30 per cent stake in its Berlinbased train business to fund manager Caisse de Depot et Placement du Quebec last year, valuing the unit at US$5 billion and helping the firm raise capital.
Still, antitrust concerns facing the two Europe- centred companies could be an obstacle to the deal, according to Invest Securities analyst Jean- Louis Sempe, who called the potential combination “logical.”
Siemens and Bombardier would also likely have to win over support from labour representatives, who would object to job cuts. Bombardier’s rail unit is set to bear the brunt of a companywide plan to cut as many as 7,500 jobs by the end of 2018.
Siemens shares rose 0.4 per cent to 128.10 euros in Frankfurt trading. Bombardier rose four per cent to $ 2.31 in Toronto. Alstom, once seen as a potential partner for Siemens and likely squeezed by any tie- up between it and Bombardier, fell 2.8 per cent.
Moving its mobility division into a joint venture would further pare back the sprawling Siemens conglomerate, which until a decade ago consisted of more than a dozen units making everything from mobile networks to light bulbs to heavy- duty industrial equipment.
Chief executive Joe Kaeser has spent recent years narrowing Siemens’ focus on energy, factory automation and industrial software. He has sold most of the lightbulb division and announced plans to list the health- care subsidiary, which makes medical scanners and other imaging equipment.
Bombardier and Siemens already know each other well, with the Montreal company’s transportation unit based in Germany after the purchase of Daimler’s Adtranz arm in 2001 made it a leading global player. Siemens Mobility — as the division is known — has its biggest train factory in Krefeld across the Rhine river from the Ruhr region.
Siemens makes the ICE high- speed t rain, which connects German cities such as Cologne, Berlin and Munich. The division also makes diesel and electric locomotives, city trams and signalling equipment, and has been dogged for years by charges and severance payments as it cut employees. This has prompted recurring speculation that the company may seek a partner such as Bombardier or Alstom.
While historically best known as a manufacturer of metro, commuter and regional trains, Bombardier has collaborated in highspeed projects including the ICE and Alstom’s TGV, and more recently developed the Zefiro model, which it sold to China for manufacture there.
A Bombardier- Siemens deal could isolate Alstom. Siemens’ bid in 2014 to buy the French company failed amid a competing offer from General Electric Co., which ended up buying Alstom’s energy- generation assets. The same transaction also saw Alstom acquire GE’s assets in signalling, one of the most lucrative areas of rail technology and seen as key to boosting train speeds and frequencies.