Siemens steels itself for EU rejection of rail merger with Alstom

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The logo of German industrial group Siemens in Zurich, Switzerland. Reuters

MUNICH (Reuters) – Siemens will accept defeat if the European Union rejects its pleas to allow it to combine with Alstom to create a powerful Franco-German rail business.

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

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

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“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,” Mr Kaeser said.

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

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

Siemens would 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 would be bound by the same laws as its predecessor, and changing these laws would take years, Busch said.

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Appealing to the EU, Mr Kaeser said Europe needed to stand together to compete with the United States, China and India. He said EU competition rules from the 1990s were from a different era that were now outdated.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 around 15 billion euros ($17 billion), 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 would help create a focused technology group.

“Although countries such as China and the United States 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 percent of Siemens.

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“This position may be correct under current European law, but fails to recognise the threats to the European industrial sector in global competition over the next 20 years,”

EU Competition Commissioner Margrethe Vestager has described Siemens and Alstom as world champions which can compete without a merger. People familiar with the matter have told Reuters regulators were minded to reject it.

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

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

Siemens reported a 6 percent fall in adjusted operating profit for its industrial business during the three months ended Dec 31 to 2.07 billion euros ($2.37 billion), missing the forecast for 2.15 billion euros in a Reuters poll.

The company’s stock was down nearly 2 percent 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 were removed. It said it also expected a profit margin of 11 to 12 percent from its industrial business.

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