After Siemens AG and Alstom SA’s highly-politicized plan for a rail merger was blocked by European Union antitrust regulators, the two former arch rivals look set to rekindle a decades-old rivalry. Or are there other avenues?
The collapse of the deal, which had strong political backing from Germany and France, opens up several possible scenarios that could change the nature of Europe’s 46 billion-euro ($52 billion) rail market:
“This may not be the very end of the story,” EU Competition Commissioner Margrethe Vestager said in an interview with Bloomberg TV shortly after driving a knife through the companies’ planned tie-up. “If the parties come back, reconstruct their deal, that would be a new situation. Prohibition is not forever.”
While Siemens and Alstom haven’t said they would contest Vestager’s decision in court or return with new terms for a combination, French and German ministers appeared determined to change the rules so that a similar deal could work in the future.
French Finance Minister Bruno Le Maire and German Economy Minister Peter Altmaier responded to Vestager’s landmark decision with a pledge to work to overhaul European competition laws and industrial policy. They had given strong backing to the idea that a combined Siemens and Alstom would provide a European counterweight to giant Chinese competitor, CRRC Corp.
Read: Siemens-Alstom’s European Champion Deal Blocked by EU (2)
The Jilted Lover
Looming in the background is Bombardier Inc., the biggest maker of train equipment in North America. The Canadians pushed back against the tie-up between Alstom and Siemens, partly because that deal—unveiled in 2017—was said to derail its own plan for closer ties with the German manufacturer. Bloomberg News reported at the time that their talks envisioned two joint ventures, one in signaling operations and one in rolling stock.
The Montreal-based company took particular pleasure in commending Vestager’s decision on Wednesday. To complicate matters, or ease more deal-making, Alstom, Siemens and Bombardier have long collaborated on contracts. Alstom and Bombardier won an order to supply double-decker cars to the Belgian national railway through 2021 and are working together on trains for the Paris region’s commuter network and Montreal’s subway system. While Bombardier’s earnings from rail have been increasing, the division has been plagued by stumbles in recent months on high-profile projects in Toronto and New York.
Back to Basics
Siemens and Alstom could just choose to pick up where they left off. After all, years of bitter competition created so much animosity that a deal between them was unexpected in the first place.
“Even if Plan A failed, that doesn’t mean we need a Plan B of a similar nature,” Alstom Chief Executive Officer Henri Poupart-Lafarge said on a call Wednesday, dismissing immediate plans for another tie-up.
Alstom isn’t doing so badly. Its record backlog of 40 billion euros at the end of last year was helped by a series of orders for a metro in Riyadh, regional trains in Luxembourg and Germany, and signaling equipment in Mumbai. The French company is also expanding further abroad and in December delivered the first train from a manufacturing facility outside Johannesburg, part of the CEO’s strategy to grow on the African continent. Interestingly, he has forecast fewer very large projects would come up for bidding.
Siemens has been pretty clear about what would happen in the event the deal with Alstom fails. “We call that competition. We’ve been competing even while we were attempting to merge,” Siemens CTO Roland Busch, who would have become chairman of the combined company, said Jan. 30.
The German company on Wednesday said it would assess all options for the future of its rail unit. In the lead up to EU blocking the tie-up, Chief Executive Officer Joe Kaeser said Siemens had possibilities including an initial public offering of shares. The division reported a jump in orders from contracts in the U.K. and Canada, and its double-digit profit margin was the third highest of the conglomerate’s eight divisions in the latest quarter.