Siemens-Alstom rail merger deal includes four-year plant guarantees

Reuters

The German industrial giant Siemens plans to merge its rail business with the French train equipment maker Alstom, the companies said Tuesday, creating a behemoth that can compete with the Chinese-state backed China Railway Rolling Stock Corporation.

Backers believe the new European rail giant would be more able to challenge China's CRRC, which is eyeing Skoda Transportation in the Czech Republic as a potential foothold in Europe.

Alstom shares jumped as much as 8.5 percent and Siemens rose 2 percent as analysts focused on the cost savings.

The new group, now named Siemens Alstom, will be headed up by Alstom boss Henri Poupart-Lafarge.

While the TGV was still the fastest railed vehicle after a 357.2 miles per hour run in 2007, the loss confirmed the pressure facing Alstom not just in the shape of Siemens but also from increasingly export-oriented Asian manufacturers and Canada's Bombardier Inc., which had become the largest western train-maker following the 2001 purchase of Daimler AG's Germany-based Adtranz arm.

Under the memorandum of understanding, Siemens would receive newly issued shares in the combined company representing 50 percent of Alstom's share capital on a fully diluted basis, according to a jointly issue press release.

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The French government is believed to have pushed Alstom and Siemens together to create an "Airbus for rail" - a reference to the successful European aircraft maker - which would have combined annual sales of around 15 billion euros.

He added: "The global marketplace has changed significantly over the last few years".

The Board of Directors of the combined group will consist of 11 members and will be comprised of six directors designated by Siemens, including the Chairman and four independent directors. Jochen Eickholt, CEO of Siemens Mobility, shall assume an important responsibility in the merged entity.

This Franco-German merger of equals sends a strong signal in many ways. "I am particularly proud to lead the creation of such a group which will undoubtedly shape the future of mobility". It is expected to generate revenues of 18 billion U.S. $and adjusted operating earnings of USA $1.4 billion.

In total, the new entity will have 62,300 employees in over 60 countries, and the merger is expected to be completed by the end of 2018.

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