Alstom, Siemens Rail-Merger – Is SkyTrain going The Way Of The Edsel?

This could be game changer for Bombardier’s rail division and a big game changer for transit planning in Metro Vancouver.

If the Siemens and Alstom merger goes through, it could mean those expensive ART, monorail, and other proprietary transit modes currently marketed by Bombardier Inc. may be chopped from production as a new  “rail” reality emerges from Europe.

If this merger takes place (I stress if) Metro Vancouver’s and TransLink’s planning for further SkyTrain extensions, especially for the Broadway subway, will be for naught, as Bombardier starts to terminate production of non profitable transit modes to remain competitive.  Very soon, there maybe may be no SkyTrain cars available, unless custom built (very expensive), for Metro Vancouver’s rapid transit planning.

In essence, with Metro Vancouver and TransLink still planning for ART SkyTrain, it will like planning to buy a new Edsel, trouble is, they don’t make it no more!

Alstom, Siemens Rail-Merger Talk Leaves Bombardier Hanging

By
Aaron Kirchfeld, Tara Patel, and Gregory Viscusi
  • French fast-train maker confirms it’s negotiating with Siemens
  • Franco-German train deal could be announced early next week

Alstom SA said it’s in talks with Germany’s Siemens AG about a possible combination of their rail businesses, a tie-up that would bring together two former European arch-rivals and leave Canada’s Bombardier Inc. exposed to cut-throat competition from China.

The boards of Siemens and Alstom are scheduled to meet early next week to approve the deal, which may be announced as early as Tuesday, according to people familiar with the matter, who asked not to be identified because the talks are private. The German company would transfer its rolling material and signaling businesses to its French counterpart in exchange for a stake of about 50 percent in the enlarged Alstom, said the people.

“No final decision has been made, discussions are ongoing and no agreement has been reached,” Alstom said in a statement Friday,  confirming a Bloomberg News report the previous day that the two engineering firms are in talks. Siemens, based in Munich, acknowledged Alstom’s statement and also said that no decision has been reached.

President Emmanuel Macron’s government signaled hours earlier that it supports deeper Franco-German corporate ties, suggesting a potential deal has political backing. The announcement also comes ahead of German elections on Sunday, which Chancellor Angela Merkel has run on a platform of political and economic stability and closer ties across Europe.

Surprise Twist

An agreement between the makers of the French and German TGV and ICE high-speed trains that criss-cross their countries adds a surprise twist to negotiations in the global train industry seeking to consolidate. Montreal-based Bombardier had also been in talks with Siemens about combining the companies’ rail divisions. Talks had centered on two joint ventures, one on the signaling operations and one on rolling stock, people familiar with the negotiations have said.

“Bombardier reiterates that its approach to industry consolidation is to
consider multiple options and to weigh them based on their potential to create
value for shareholders,” the company said in a statement. “We will not comment on specific initiatives involving our competitors.”

Siemens and Bombardier had been nearing a deal toward the end of August, but those talks stalled over concerns including some perceived challenges faced by the Canadian parent including its plane business, the people said. The Canadian firm still sees the rationale of a rail tie up, which would’ve been based in Germany, though it also sees the benefit of retaining the cash flow generated from the rail business, the people said. A Franco-German deal, which had been discussed on and off, has the support of the French and German governments as they seek to create European champions, some of the people said.

Bombardier Falls

Alstom shares rose 4.1 percent to 33.01 euros in Paris, the highest close in 4 1/2 years that took market value to 7.3 billion euros ($8.7 billion). Siemens fell 0.8 percent to 116.55 euros while Bombardier dropped 4.6 percent to C$2.26.

The talks for a tie-up come as all three companies are facing increased competition for contracts from industry leader CRRC Corp. of China, formed from a 2015 merger of the country’s two main regional train makers. During the past few months, Alstom, Bombardier and Siemens executives have spoken about the need for consolidation in the industry, while declining to comment specifically about any possible agreements.

“We’re watching French-German talks,” French cabinet spokesman Christophe Castaner said Friday when asked about Siemens and Alstom. “We have to see the terms but it is important to reinforce our industry with Franco-German unity.”

Airbus Model

The model for such cooperation between the euro zone’s two biggest economies is Airbus SE, the Toulouse-based aircraft manufacturer founded in 1970 and formed from companies from four European countries that went on to become the biggest competitor to Boeing Co. Macron, who won power in May by defending closer European ties, has repeatedly said that cross-border cooperation in the region offers the best way to tackle issues ranging from industrial development to immigration and defense. The French and German governments each own about 11 percent of Airbus.

Closer ties could be in the offing in the banking sector as well, with French lender BNP Paribas among the European banks that could buy Germany’s Commerzbank AG, according to reports this week.

Merkel also weighed in this year when France’s PSA Group acquired German automaker Opel from General Motors Co. After PSA gave assurances that existing labor agreements would be honored, Merkel’s government didn’t stand in the way of the deal, which was completed last month.

“We are watching these potential tie-ups,” Castaner said of the possible rail and banking deals. “There are no concerns if it is not done to the detriment of jobs.” The German government doesn’t comment on talks or company negotiations as a matter of principle, according to a spokesman for the government in Berlin.

Overlap

Siemens and Bombardier’s rail operations have significant overlap in Europe, especially Germany, where the Bombardier unit is based. An agreement between those two companies would have raised the likelihood of asset sales to allay regulatory concerns, and possible job cuts. Alstom has been under pressure from the French government to retain jobs, and was prevented from halting production at a site in the eastern part of the country last year.

 

 

A deal with Alstom would be in keeping with Siemens Chief Executive Officer Joe Kaeser’s moves toward a more holding-like structure for the German conglomerate, giving autonomy to units while still being centrally managed. Siemens is now laying plans to carve out the health-care division called Healthineers after combining its renewables business with that of a Spanish rival to form majority-owned Siemens Gamesa Renewable Energy SA.

Le Monde reported earlier on Friday that Siemens’ rail and signaling assets assets would be valued at around 7 billion euros ($8.3 billion) and Alstom would issue new shares to Siemens as part of the transaction. The two companies are also discussing an option to increase their stakes in the future, one person familiar said.

Alstom became a transport-focused company after selling most of its energy assets to General Electric Co. in 2015. At the time, Siemens had made a counteroffer for Alstom that included combining its train operations.

As part of the GE deal, construction and telecom company Bouygues SA lent a stake of 20 percent to the French state and retained 8.3 percent. Between Oct. 5-17, the government has a one-time option to buy a portion of the borrowed stake — 15 percent — at around market price. Past that period, Bouygues will reclaim the shares the government hasn’t bought.

Comments

One Response to “Alstom, Siemens Rail-Merger – Is SkyTrain going The Way Of The Edsel?”
  1. Haveacow says:

    I don’t think Bombardier will be left out in the cold on this one. Let’s call it what it really is. This whole Siemens situation is essentially a fire sale! Siemens used to be 2nd or 3rd largest rail vehicle supplier in the world and is now about 5th and dropping. It looks like for now anyway, Alstom will grab the lion’s share of Siemens rail vehicle products and assets worldwide. But remember, there is still a hell of a lot of market overlap here. Alstom has very little use for the majority of Siemens’s LRV portfolio and technology.

    There is still however a ton of market space up for sale here in the North American LRV market (where Siemens has always dominated) but most of Alstom’s products don’t need the huge amount of production assets (assembly factories and parts plants) Siemens has here. Bombardier on the other hand, would love to grab Siemens’s Sacramento LRV facility, its state of the art and has an experienced staff as well as access to the US market. It makes Bombardier’s current American LRV and Subway vehicle production facility in New York State, which is still really good at full scale subway/full metro and mainline railway vehicle production but lousy when it comes to LRV’s, look very primitive in comparison. Bombardier has a brand new LRV production facility for Canada in Kingston Ontario. An American LRV/, subway, mainline railway parts facility would also be a great addition for Bombardier.

    Siemens’s signaling and rail signal processing division will grab a lot of buyers especially for North America. One advantage Siemens enjoyed over every other LRV producer in North America was that it had an entire American/Canadian division that specialized in advanced versions of North American only railway signalling, train signal processing business. Essentially anything to do with train signals for all types of rail vehicles used in or on this continent (all in house). Neither Bombardier or Alstom had this and many times have to use expensive or under productive 3rd party manufacturers. Bombardier has for example, its Data-Flo signal processing system that works with its City Flo 650 Train Automation System used on Skytrain, although assembled specially by Bombardier, most of the subsystems and programming are done by numerous 3rd party vendors. Bombardier could save a lot of money by putting it all under one roof with a core of highly professional and experienced staff (formerly Siemens employees), ready to go from almost day one. 3rd party quality control has been a thorn in Bombardier’s side for awhile now and this would eliminate this problem in the signal system area (Zwei, remember the article about Bombardier’s signalling system issues for the London subway contract)!

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