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Siemens and Alstom Agree to Massive Merger

By Patrick Higgins  |  27/09/2017 12:54
The French government has come out in support of the Siemens-Alstom merger deal, despite French union fears that the merger will result in job cuts.
 
This merger, which has yet to be approved by all Alstom shareholders or regulators such as the European Commission, is a move in the right direction for Emmanuel Macron's government, who campaigned for the French presidency on the promise of stronger trade and economic links within the EU.  Thus far, both Alstom and Siemens' boards in their entireties have approved the merger, as well as Alstom shareholder Bouygues.
 
While speaking in Paris French Finance Minister Bruno Le Maire, in response to criticism that France is giving up a national icon, told reporters that the best way to, "face up to competition from China and the United States," was to create European industrial champions, and to protect EU domestic markets.
 
The merger of Siemens and Alstom, two of Europe's largest companies, is testament to that statement from Mr. Le Maire.  Siemens and Alstom, two of Europe's most major companies, will form a company able to rival the mega-firms or the US and China, especially China's state-owned company CRRC Corp Ltd, which itself was the result of a merger between two of China's largest stock manufacturers.  CRRC, with an annual revenue rate of $35 billion, is bigger than Siemens and Alstom combined. Though it used to only focus on projects in China, CRRC now has pursued contracts in the Czech Republic and the UK and is currently seeking to develop the High Speed 2 project to connect London to the north of England. 
 
The new company, called Siemens Alstom, will be majority owned by Siemens, at around 50.5%.  To counter criticisms that France is selling a national icon, Siemens Alstom will be headquartered in Paris, with Alstom CEO Henri-Poupart-Lafarge becoming the new CEO.  Stock market listing will be initially on the CAC 40, with its technologies development business entities to be based in Berlin.
 
Siemens Alstom will have 62,300 employees and is targeted to create combined synergy rates of 430 million euros four years at the latest after the deal is sealed.  Both companies have a combined turnover rate of 15.3 billion euros of yearly sales, and earnings after taxes of around 1.2 billion euros.
 
Due to their majority control of the new firm, Siemens stands to take over Alstom's main areas of business, which includes railways, high-speed train manufacturing, and various other aspects within the transportation industries.  However, due to conditions laid out per the terms of the deal, Siemens is prevented from controlling more than 50.5% of Siemens Alstom Newco for at least four years after the deal is finalised. 
 
In an interview with Reuters earlier today, Siemens CEO Joe Kaeser stated that Siemens chose Alstom because of its healthy finances, as opposed to Canadian- firm Bombardier, which has slimmer sources of capital (a net income rate of -$981 million for 2016) and weaker finances overall.  Kaeser believes that, due to the increased strength of Chinese and American firms and their encroachment on European markets, that European regulators had little wiggle room to oppose a merger of this kind.
 
On the French side of the deal, there are serious worries that control over the production of the TGV, France's pedestaled high-speed train, will move to Siemens control.  Additionally, many French unions worry over the extent of restructuring.  Though Alstom moved to quell such concerns through the placement of its CEO in control of the new company, there will continue to be issues with the percentage amount Siemens can control.  For now, however, the threat of mega-companies like CRRC mean that mergers such as Siemens-Alstom are necessary in the minds of Europe's leaders, in order to prevent global monopolies or unwelcome intrusion into EU markets.
 

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