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European rail deal fulfils Macron vision, French fear for jobs

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Henri Poupart-Lafarge, Chairman and Chief Executive Officer of Alstom, shakes hands with Siemens President and CEO Joe Kaeser (L) at a news conference to announce their deal to merge their rail operations, creating a European champion, in Paris, France, September 27, 2017.

PARIS/FRANKFURT  - A merger of the rail businesses of Germany’s Siemens and France’s Alstom, billed as creating a European champion, was welcomed by investors but criticized in France as giving away control to Germany and risking job cuts.

The tie-up, set to help the European companies counter the rapid rise of China’s state-owned CRRC 601776.SS, represents an industrial win for Macron, who is proposing sweeping reforms for Europe including deeper trade cooperation.

While his government said on Wednesday the deal would preserve “strategic interests”, others accused him of neglecting national concerns.

“It is bound to bring a restructuring and no doubt the culling of hundreds of jobs,” said Olivier Kohler, a trade union official in the eastern French town of Belfort, where Alstom makes the high-speed TGV trains that travel the length and breadth of the country.

Alstom shares jumped as much as 8.5 percent and Siemens rose 2 percent as analysts focused on the cost savings.

French and German leaders have for years called for the creation of “European champions” such as Airbus to capitalize on the strengths of Europe’s single market and create the scale needed to compete with U.S. and Asian rivals.

Yet discussions have often run into difficulties as politicians vie to protect local jobs and retain national influence over an industrial sector.

Under the rail deal announced on Tuesday, Siemens will have a small majority of the Paris-based and listed combination, which promises eventual annual cost savings of 470 million euros ($552 million) a year, while Alstom boss Henri Poupart-Lafarge will become its chief executive.

While Joe Kaeser, CEO of Siemens, acknowledged there would be job losses, he said they would be in support functions such as human resources rather than in engineering.

“Of course there will be redundancies, that’s part of the synergies,” told a news conference.

French Finance Minister Bruno Le Maire told reporters in Paris he hoped Europe could now go on to create a leading naval company at a Franco-Italian summit in Lyon.

That would be part of a deal between Paris and Rome over the STX France shipyards.

COST SYNERGIES

“What makes this deal attractive are the targeted cost synergies,” wrote Barclays analyst James Stettler, who rates Alstom “overweight” and Siemens “neutral”.

“If successful, this deal should in our view create significant value for both parties.”

Baader Helvea Equity Research analysts described the Siemens-Alstom agreement as “a strategic move that has to be seen against the backdrop of increasing international competition over the past decade”.

Siemens will control Siemens Alstom, with 50 percent of the combination plus a few symbolic shares. It will also get warrants allowing it to eventually acquire another 2 percent.

Alstom’s shareholders, meanwhile, are set to receive two special dividends from the tie-up.

ANTI-TRUST QUESTIONS

Some analysts were not convinced that squeezing costs out of the combined business would be easy and Deutsche Bank kept a “hold” rating on Alstom shares.

“Politicians will also likely try to ensure some form of jobs protection in France and Germany ... making cost synergies difficult to extract,” Deutsche Bank analysts wrote in a note.

The Siemens and Alstom transport businesses have combined sales of 15.3 billion euros and earnings before interest and tax of 1.2 billion euros, raising questions over whether the deal could fall foul to European anti-trust regulations.

But Alstom’s Poupart-Lafarge said the two had done their homework, adding he was confident of finding a solution.

“Of course this is a large deal so no surprise it will be looked quite closely by the European Commission,” he said.

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Muslim Global: European rail deal fulfils Macron vision, French fear for jobs
European rail deal fulfils Macron vision, French fear for jobs
A merger of the rail businesses of Germany’s Siemens and France’s Alstom, billed as creating a European champion, was welcomed by investors but criticized in France as giving away control to Germany and risking job cuts.
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