Siemens, Bombardier Said to Explore Two Rail Joint VenturesBy , , and
German, Canadian rivals progressing in talks for combination
Ventures would be for rolling stock, signaling operations
The companies are making progress on one joint venture for their rolling stock operations, which would be controlled by Montreal-based Bombardier, and another for signaling, in which Siemens would have a majority, said the people, who asked not to be identified because the talks are private. A deal could be reached in the coming months, they said.
No final decisions have been made and any combination would require political backing, clearance from antitrust authorities and face potential opposition from unions, they said. Representatives for Siemens, which has headquarters in Munich, and Bombardier declined to comment.
The joint ventures would “benefit Siemens, if they do obtain signaling activities, where margins are higher” competition isn’t as fierce and working capital not as heavy, said AlphaValue analyst Lionel Pellicer.
The talks for a tie up come as both companies, along with France’s Alstom SA, are facing increased competition from industry leader CRRC Corp. of China, formed from a 2015 merger of the country’s two main regional train makers. Siemens and Bombardier’s rail operations have significant overlap in Europe, especially Germany, raising the likelihood of asset sales to allay regulatory concerns, and possible job cuts.
Siemens shares fell 1.7 percent to 121.15 euros at 5:11 p.m. on Thursday in Frankfurt, while Alstom fell 3.6 percent to 30.53 euros in Paris. Bombardier shares fell 0.8 percent to C$2.42 in Toronto.
If Siemens and Bombardier do get a deal “it could affect Alstom’s share price for some time,” Pellicer said, adding that the tie up may in fact not be all bad news for the French company because it has been able to win contracts despite competition from the Chinese.
“Alstom doesn’t necessarily need to get bigger. It reached a critical size and is focusing on maintenance and services,” he said, adding that the Chinese company doesn’t necessarily have a cost advantage since many countries require local production.
Siemens outlined plans in May to cut 300 rail operation positions in the western German town of Krefeld. Bombardier’s rail unit, which makes subways, tramways and high-speed trains, will eliminate as many as 2,200 jobs in Germany by 2020 under a previously-announced plan to cut 7,500 positions worldwide, spokesman Marc-Andre Lefebvre said Thursday by telephone.
Bombardier plans to keep all its German factories in operation and spend about 70 million euros ($80 million) to modernize them, it said in a statement. As of the end of 2016, Bombardier’s rail unit employed about 8,500 people in Germany. Both Bombardier and Siemens have rail operations in Berlin, which would likely serve to intensify scrutiny of any deal from politicians and unions.
Siemens earned 7.8 billion euros ($8.8 billion) in sales from its so-called mobility unit in the last fiscal year, more than the $7.6 billion recorded by Bombardier’s transportation division. While Bombardier dwarfs Siemens in rolling stock revenue, Siemens makes almost double that of Bombardier in signaling, according to Barclays analysts.
Talks between Bombardier and Siemens, which started earlier this year, were first reported by Bloomberg in April.
“It’s obvious there’s a lot of consolidation going on,” Siemens Chief Financial Officer Ralf Thomas said in an interview in May, calling talk of a tie up with Bombardier “rumors.” Alstom Chief Executive Officer Henri Poupart-Lafarge said “a certain consolidation” is “probably necessary in Europe” while Bombardier CEO Alain Bellemare said May 11 the company was “going to look at the entire industry and industry consolidation, and take a proactive approach.”
Bombardier sold a 30 percent stake in its Berlin-based train business to fund manager Caisse de Depot et Placement du Quebec last year, valuing the unit at $5 billion. Siemens makes the ICE high-speed train as well as diesel and electric locomotives, city trams and signaling equipment.
— With assistance by Oliver Sachgau, and Ania Nussbaum