Siemens, Bombardier said to explore two Rail JVs for their Rolling Stock operations in Europe

The companies are making progress on one JV for their rolling stock operations, which would be controlled by Bombardier, and another for signalling, in which Siemens would have a majority

London/Frankfurt/Montreal: Siemens AG and Bombardier Inc. are exploring options including two rail joint ventures as part of their planned train-equipment tie up, according to people familiar with the matter.

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 signalling, in which Siemens would have a majority, said the people, who declined 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.

Siemens shares were unchanged at €123.15 at 10:05am in Frankfurt. Bombardier shares closed 1.2% higher at C$2.44 in Toronto on Wednesday.

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 job overlaps.

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, plans to slash 5,000 positions globally, with about half in Germany, German daily Handelsblatt reported Tuesday, citing company sources.

Scrutiny

Both companies have rail operations in Germany’s capital, Berlin, which would likely serve to intensify scrutiny of any deal from politicians and unions.

Siemens earned €7.8 billion ($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 signalling, according to Barclays analysts.

Talks between Bombardier and Siemens, which started earlier this year, were first reported 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 11 May the company was “going to look at the entire industry and industry consolidation, and take a proactive approach.”

Bombardier sold a 30% 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 signalling equipment.

Siemens CEO says rail partnerships possible alternative to M&A. The chief executive of Siemens (SIEGn.DE) said partnerships on major rail contracts were a possible alternative to mergers, when asked about progress on reported talks for a rail tie-up with Canada’s Bombardier. “You can work together like that too, it doesn’t always have to be a huge M&A issue,” Joe Kaeser told journalists on the sidelines of an event on Monday, declining to comment directly on talks with Bombardier.

Sources had told in April that talks about uniting the rail operations of Siemens and Bombardier were being complicated by the desire of both companies to keep control of a merged business. Kaeser said rail technology companies had to consider how to respond to fierce competition in the sector but said neither Siemens nor its peers were under immediate pressure to act.

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