A scale model of an Alstom AGV high speed train on display in Saint-Ouen, near Paris on May 4, 2017. Picture: REUTERS/GONZALO FUENTES
A scale model of an Alstom AGV high speed train on display in Saint-Ouen, near Paris on May 4, 2017. Picture: REUTERS/GONZALO FUENTES

Munich/Paris — The Siemens-Alstom agreement to merge their rail operations is a Franco-German industrial breakthrough for French President Emmanuel Macron but has riled opposition politicians.

Finance Minister Bruno Le Maire, who said on Tuesday that the French government welcomed the planned tie-up which would protect French jobs, reiterated his support on Wednesday.

Speaking ahead of a French-Italian summit in Lyon later on Wednesday, he said he hoped Europe could create a leading naval company similar to the one formed by the railway transaction.

France and Italy could reach a deal over the STX France shipyards at the meeting of the two countries’ leaders, an official in French President Emmanuel Macron’s office said on Monday.

Le Maire said he would visit Alstom’s emblematic Belfort site to reassure workers over their jobs following the Siemens deal.

The new entity would create a European leader able to take on Chinese and world rivals, he said.

But the opposition worries that France will lose control of its TGV high-speed train — a symbol of national pride that has highlighted French engineering skill — and concerned about possible job losses.

German industrial group Siemens and its French rival agreed to merge their rail operations, creating a European champion to better withstand the international advance of China’s state-owned CRRC Corporation.

A logo of Siemens is pictured on a building in Mexico City on May 16, 2017. Picture: REUTERS/EDGARD GARRIDO
A logo of Siemens is pictured on a building in Mexico City on May 16, 2017. Picture: REUTERS/EDGARD GARRIDO

Siemens will own 50% plus a few shares of the joint venture, to be called Siemens Alstom, while Alstom will supply Henri Poupart-Lafarge as CEO, helping to counter criticism that France is giving up control of another national industrial icon.

The nonexecutive chairman will come from Siemens.

The framework deal still has to be approved by Alstom shareholders as well as regulators.

The French state said it would not exercise an option to buy a 20% stake in Alstom from industrial group Bouygues.

The Siemens and Alstom transport businesses span the iconic French TGV and German ICE high-speed trains as well as signalling and rail technology.

They have combined sales of €15.3bn and earnings before interest and tax of €1.2bn.

"This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term," said Siemens CEO Joe Kaeser.

Alstom’s Poupart-Lafarge said: "Today is a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation."

Analysts at Deutsche Bank kept a "hold" rating on Alstom shares, saying extracting cost savings from the deal could be tricky.

"Politicians will also likely try to ensure some form of jobs protection in France (28% of Alstom’s workforce) and Germany (39% of Siemens’s workforce), making cost synergies difficult to extract," they wrote in a note.

The deal leaves out in the cold Canadian transportation group Bombardier, which also held talks with Siemens, sources have said, and which faces a separate battle this week to protect jobs in Quebec and Northern Ireland.

China’s CRRC, with annual revenue of about $35bn, is bigger than Siemens Mobility, the rail and infrastructure division of the German conglomerate, Alstom and Bombardier Transportation combined.

Previously focused on China, it has won projects in Britain and the Czech Republic in the past year, and is eyeing the UK’s High Speed 2 project, which will connect London with cities in the north of England.

Special dividends

Siemens will receive newly issued shares in the combined company representing 50% of Alstom’s share capital and warrants allowing it eventually to acquire another 2% of Alstom shares.

However, the deal prevents Siemens from owning more than 50.5% of Alstom for four years after closing, and includes "certain governance and organisational and employment protections", Siemens and Alstom said in their statement.

The deal was unanimously supported by Alstom’s board, Siemens’s supervisory board and Alstom shareholder Bouygues, the companies said.

The French government acquired its option on the Bouygues stake in Alstom in 2014 as part of a deal that helped Alstom snub Siemens as a buyer for its energy business in favour of General Electric.

Macron was economy minister at the time.

The global headquarters, rolling stock business and stock-market listing of the new entity will be in Paris and the signalling and technology business in Berlin.

The new company, with 62,300 employees, targets synergies of €470m four years at the latest after the closing of the deal, which is expected at the end of 2018.

The companies said their operations were largely complementary, with Alstom present in growth markets in the Middle East and Africa, India, and Central and South America, while Siemens was strong in China, the US and Russia.

Siemens CEO Kaeser said ahead of the signing of the memorandum of understanding he believed the scale of China’s CRRC left little room for regulators to oppose a deal.

"It always depends, but the facts are that there is a dominant player," he said in an interview in New York.

Siemens stands to gain control of Alstom’s main business, since all of Alstom’s divisions deal with the railways and transportation industries.

Existing Alstom shareholders will be paid two special dividends: a control premium of €4 per share to be paid shortly after closing of the transaction and an extraordinary dividend of up to €4 per share to be paid out of the proceeds of Alstom’s put options for its General Electric joint venture, "subject to the cash position of Alstom".


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