We are in touch with Bombardier for Consolidating our Rail Business: Joe Kaeser, CEO/Siemens

Joe Kaeser, Chief Executive, Siemens AG
Joe Kaeser, Chief Executive, Siemens AG

Munich: Siemens AG Chief Executive Joe Kaeser said Thursday that he recently met with the Executive Chairman of Bombardier Inc., adding that while Siemens is “well positioned” in the global train industry, “definitely there is movement and consolidation in that market going forward and we definitely will be very mindful of what can be done there.”

Both companies are among the world’s largest makers of train equipment and are jockeying for position amid consolidation in the global rail industry.

However, Mr. Kaeser said he “did not discuss business” in his recent meeting.

The Wall Street Journal reported Wednesday that representatives of the two sides have held talks about potential linkups between their rail operations. The discussions were said to be at an early stage and a deal was far from guaranteed. Both companies’ train operations are based in Germany.

One of the people familiar with the matter said the two sides last month agreed to assess synergies between their businesses. This person said Mr. Kaeser assigned a team of senior employees who handle mergers and acquisitions to spearhead the evaluation. A spokesman for Siemens declined to comment on “market speculation.”

Bombardier is controlled by members of the Beaudoin family, who are heirs to company founder Joseph-Armand Bombardier. Mr. Kaeser said on a call with reporters Thursday that he met with the “chairman of the Bombardier family,” who he later clarified was Executive Chairman Pierre Beaudoin.

A Bombardier executive, John Paul Macdonald, also confirmed that a meeting took place between Mr. Kaeser and Mr. Beaudoin, but declined to provide further details.

Montreal-based Bombardier on Thursday declined to discuss possible partnerships for its train business. A Bombardier spokesman on Wednesday said that the company was “looking at industry consolidation, but there are no formal discussions” with Siemens.

Bombardier representatives have also talked to other possible partners, two of the people familiar with the talks said.

Analysts put a price tag of $5.1 billion on Bombardier’s train unit.

In May, Bombardier Chief Executive Alain Bellemare said he was considering either a joint venture or partial sale of the rail unit, in addition to a minority spinoff on the Frankfurt Stock Exchange, but dismissed speculation that the entire rail business was for sale.

The Bombardier spokesman said Wednesday that the company would “evaluate other strategic opportunities.”

Based on revenues, Siemens’s train unit is about one-third smaller than Bombardier’s. The Canadian company’s transportation business posted revenue of $9.6 billion last year, while Siemens’s mobility division, which includes its rail businesses, reported revenue of EUR7.2 billion ($8 billion) during the same period. Siemens’s rail business comprises about 85% of its mobility division, according to a calculation by an analyst at J.P. Morgan.

When Siemens reported third-quarter results for fiscal year 2015 on Thursday, the mobility division saw a surge in orders, helped by a EUR1.6 billion long-term maintenance order for trains in Russia. At the same time, overall profitability was down 28%.

Mr. Kaeser’s talks took place against the backdrop of consolidation in the global rail industry. China’s two state-owned train makers, CSR Corp. and China CNR Corp., merged last month to become CRRC Corp. Just before the merger, the two companies had a total market capitalization of around $127 billion, according to S&P Capital IQ.

Earlier this year, the two government-controlled entities considered a bid for Bombardier’s train assets in an effort to further increase their global presence, according to people familiar with the matter. But CRRC said in late June that it had no plans to buy Bombardier’s train business.

Asia is the world’s largest market for trains, with rolling-stock sales averaging EUR28.4 billion over the past three years, compared with EUR21.9 billion in Europe and EUR16.8 billion in North America, according to rail consultancy SCI Verkehr.

Asian and West European train markets will grow the most in the coming years, SCI predicts.

In an effort to better serve their home market, both CSR and CNC have been making trains through joint ventures with Western companies, including Siemens, Bombardier, General Electric Co. and Alstom SA, according to Maria Leenan, chief executive at SCI.

GE, which is in the process of buying Alstom’s energy business, last year opted not to acquire the French industrial group’s rail division when the two companies negotiated a takeover by GE.

Siemens, which also bid for Alstom’s energy operations last year, at the time offered to trade its rail division to Alstom as part of any future deal. Alstom rejected that offer but a Siemens-Alstom train tie-up remains a possibility for both European companies, analysts say, despite the GE-Alstom deal.