Nevertheless, negotiations appear to have been concluded swiftly. This was reflected in the enthusiasm for the deal which was evident in the speeches made in Paris on September 27 by Mr Joe Kaeser, president and CEO of Siemens, and Alstom’s CEO Mr Henri Poupart-Lafarge, with both men emphasising their belief that it is a perfect fit as their two businesses are largely complementary.
This may well be true to a certain extent geographically as Alstom appears to be stronger in South America, northern Africa, and South Africa where it has a huge contract for commuter trains. But both companies have joint ventures in China and Russia, and have a strong presence in North America and of course Europe.
But there is a considerable overlap in terms of products and technology, which will be challenging to resolve in the future. Both companies have strengthened their signalling and train control capability in the last couple of years, with Siemens acquiring Invensys and Alstom taking over GE’s signalling business as part of a deal involving the sale of Alstom’s power division to GE.
The two companies are both strong in the high-speed, EMU, metro train and LRV markets, although only Alstom has a range of tilting and non-tilting 250km/h trains under the Pendolino brand. As far as locomotives are concerned, on the face of it sales of the two company’s products appear balanced. According to IRJ Pro Fleet Monitor, Alstom has sold 925 Prima locomotives compared with 819 locomotives for Siemens since 2012. However, 800 of the Alstom locomotives were sold as one large contract for India, while sales of Siemens’ popular Vectron electric unit have been ramping up with sales totalling 557 units.
The merger is expected to result in synergies of €470m within four years of financial close, which is expected at the end of 2018. Kaeser was blunt when asked whether the merger will result in job losses: “Of course there will be,” he said. “We will bundle our resources.” But as Alstom recently discovered to its cost, when it tried in vain to close its Belfort plant in France, politicians can often intervene to thwart factory closures, while unions can also make life very difficult for companies seeking redundancies.
Mergers, even when well planned, inevitably cause a huge amount of internal disruption and can lead to friction between managers resulting in the new company taking its eye off the main goal: growing the business and profitability. Kaeser, who paid tribute to Mr Jochen Eickholt for taking Siemens Mobility from “a meaningless to meaningful business” during his tenure as CEO, has appointed Eickholt as integration manager for the merger, while splitting the CEO position at Siemens Mobility in two. Conversely, Poupart-Lafarge will become CEO of the new company.
The merger is expected to increase resources for research and development, which is vital for the new company to maintain a technical lead. But, it remains to be seen whether the company will be willing to commit sufficient resources when you consider that CRRC’s R&D budget is reportedly seven times that of Alstom’s.
One of the reasons stated for the merger is to create a company strong enough to compete effectively with companies like CRRC and Hitachi Rail. CRRC has said it wants exports to account for 20% of sales by 2020, compared with 15% in 2016 when exports were already worth $US 8.1bn.
One problem with mergers, which is often overlooked by senior managers, is that one plus one equals one, as a merger removes one competitor from the market. So rapidly growing companies such as Stadler and CAF, let alone Bombardier, will no doubt be delighted that there will be one less competitor bidding for contracts.
Kaeser refused to say why merger talks with Bombardier collapsed, and Bombardier has remained silent on the matter. There are several likely reasons why the talks broke down. Bombardier sold a 30% stake in its Transportation division to Caisse de Dépôt et Placement du Québec in February 2016 to help support its troubled aerospace division, and this stakeholder could have objected to a deal with Siemens. There might also have been a clash of personalities at the top of the two companies.
Siemens may also have been concerned by the ramifications of an agreement signed in September 2016 between Bombardier and CRRC to expand and deepen their relationship for selected rail projects in both China and abroad. Bombardier is a Canadian company, and Canada is keen to secure a trade deal with China, which the Americans fear could allow China to enter the US market by doing deals with Canadian companies.
Despite Kaeser’s assurances that the Siemens-Alstom merger does not pose any “fundamental risk” during forthcoming negotiations with antitrust authorities, such negotiations are still unpredictable and the deal could be scuppered if it is seen to substantially reduce competition. But whatever the outcome, one thing is certain: the industrial scene is always in a state of flux as companies jockey for position, and nothing ever stays the same for long.