Siemens steels itself for EU rejection of rail merger with Alstom

Siemens will accept defeat if the EU rejects its pleas to allow it to combine with Alstom to create a powerful Franco-German rail business.

Having offered a series of concessions to answer competition concerns, Siemens will not pursue the deal at all cost and instead make new plans for its trains business, CEO Joe Kaeser said before the German company’s annual meeting in Munich on Wednesday.

The engineering company wants to

create a European rail champion to compete with China’s state-owned CRRC but its ambitions have run into opposition from EU regulators concerned about the impact on train operators.

“We are not bitter, we are not angry at all. We have different options. If it works it will be good for Europe, Siemens, Alstom, and for customers,” Kaeser said.

“If not, we will continue to lead in mobility as we have before,” said Kaeser who nevertheless appeared to be resigned to the merger being rejected.

The EU Commission is due to announce its decision by February 18, with indications the merger will be rejected.

Siemens  will be unlikely to make a second approach to a new EU Commission after the European elections in May, Siemens managing board member Roland Busch said. A new commission  will be bound by the same laws as its predecessor, and changing these laws  will take years, Busch said.

Playing by outdated rules? 

Appealing to the EU, Kaeser said Europe  should stand together to compete with the US, China and India. He said EU competition rules from the 1990s  are outdated.

“It will be interesting to see if the future of mobility in Europe will be determined by backward-looking technocrats or future-oriented Europeans,” he said.

The merger aims to create the world’s second-largest rail company with combined revenues of  about €15bn,  still half the size of CRRC but twice that of Canada’s Bombardier.

The plan has been backed by Siemens shareholders who have said it will help create a focused technology group.

“Although countries such as China and the US are increasingly ruthlessly pursuing their own industrial policy, the focus of the Competition Commission is on the task of protecting consumers and ensuring fair competition within the EU,” said Marcus Poppe, fund manager at German asset manager DWS, which owns 2.2% of Siemens.

EU competition commissioner Margrethe Vestager has described Siemens and Alstom as world champions that can compete without a merger. People familiar with the matter have said regulators  are minded to reject it.

The German  company’s main customers include Deutsche Bahn and Channel Tunnel operator Eurostar. Siemens recently signed a €1.54bn deal to supply London Underground with 94 new trains.

Reporting its first quarter results on Wednesday, Siemens posted weaker-than-expected industrial profit, as problems persisted at its power and gas business, which was hit by collapsing demand for large turbines.

Siemens reported a 6% fall in adjusted operating profit for its industrial business during the three months ended December 31 to €2.07bn,  missing the forecast for €2.15bn in a Reuters poll.

The company’s stock was down nearly 2% by midday.

Profit halved at its Power and Gas business, although the downturn was partly balanced by an improvement in profit at Digital Factory, the company’s automation unit.

The company maintained its guidance, expecting moderate revenue growth in 2019 when currency swings and acquisitions  are removed. It said it also expects a profit margin of 11%-12% from its industrial business.

• Reuters