September 26, 2017 / 12:36 PM / 25 days ago

Factbox: Keeping a Siemens-Alstom rail alliance on track

PARIS (Reuters) - Germany’s Siemens (SIEGn.DE) is likely to pursue a multi-billion-dollar merger of its rail business with France’s Alstom (ALSO.PA), with the boards of the two expected to decide on a deal on Tuesday.

The following summary of the logic being put forward for a merger and the potential risks involved is based on information from sources familiar with the situation and media reports.

IS SIEMENS AT THE CONTROLS?

Siemens Mobility, the rail and infrastructure division of the German conglomerate, is expected to be merged into Alstom, with Siemens left holding 50 percent plus one share.

The combined company would have 15 billion euros ($18 billion) in sales of trains, track-signalling systems and rail services, enabling it to better compete with international rivals, especially from China’s state-backed CRRC.

MERGER OF EQUALS?

The French authorities, who are pushing for the deal, want the terms to be ‘balanced’. As part of the current discussions, the headquarters would be in France, the new entity’s chairman would be chosen by Siemens and its chief executive would be Alstom’s CEO. Siemens would also name 6 out of 11 board members.

HOW MUCH POLITICAL RISK?

A deal would mark the first industrial Franco-German alliance under French President Emmanuel Macron as he pushes for greater European economic integration.

However, political opponents are already putting pressure on the government, criticizing it for surrendering TGV, France’s much-beloved high-speed train. Allowing a French champion to come under German control is unacceptable for some in France.

Macron’s approval ratings have been sliding and the Siemens deal could exacerbate that. Macron has stepped in to block other takeovers where other national champions were involved, raising questions about why he has not done so for Alstom.

UNION DEMANDS MET?

To avoid political and social opposition in France, Alstom and Siemens are negotiating a deal to protect jobs there for at least four years. Alstom has one train-making plant in Germany and Siemens has none in France. Would such a deal be enough to ease concerns among French unions who are already alarmed by Macron’s labor reforms. They sent a letter to Macron last week requesting more clarity on the state’s strategy for Alstom.

FRENCH STATE EXIT?

The French state will not use its option expiring in October to buy out the 20 percent of Alstom owned by telecoms group Bouygues, sources have told Reuters. The option cleared the way in 2014 for an agreed tie-up between Alstom and General Electric. If France does not exercise the option, it would leave Bouygues as the largest shareholder in Alstom with 28.3 percent, a stake that would be diluted by half under the Siemens deal.

BOUYGUES AMBIVALENCE?

Bouygues bought the stake in Alstom in 2006 when the train maker was rescued by the government. Since then, Bouygues has signaled that Alstom has become a non-strategic asset. It is not clear whether they decide to retain or sell it. The board of Bouygues is also due to meet on Tuesday.

COMPETITION HURDLES?

The deal would have to be approved by European Union antitrust regulators, which could take a long time and require disposing of some assets to ensure competition is maintained.

Although French authorities say they are not worried about this, anti-trust approval for a deal involving the “Big Three” -- Siemens, Alstom and Canada’s Bombardier (BBDb.TO) -- has always been cited as a concern by Alstom’s CEO Henri Poupart-Lafarge, Barclays analysts said.

But Siemens Chief Executive Joe Kaeser said he believed the scale of CRRC left little room for regulators to oppose a deal.

“It always depends, but the facts are that there is a dominant player,” he told Reuters.

Reporting by Jean-Baptiste Vey, Gwenaelle Barzic, Cyril Altmeyer, Gilles Guillaume and Maya Nikolaeva in Paris; Georgina Prodhan in Frankfurt and Alexander Huebner in Munich; editing by Alexander Smith

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