Siemens-Alstom deal to create European rail behemoth

German industrial group Siemens and its French rival Alstom have agreed to merge their rail operations, creating a European champion to better withstand the international advance of China's state-owned CRRC Corporation.

Siemens will own 50 per cent plus a few shares of the joint venture, to be called Siemens Alstom, while Alstom will nominate Henri Poupart-Lafarge as chief executive, helping to counter criticism that France is giving up control of another national industrial icon.

The Siemens-Alstom agreement to merge their rail operations is a Franco-German industrial breakthrough and a triumph for French President Emmanuel Macron, but has riled opposition politicians, Reuters reports.

The non-executive chairman will come from Siemens.

The framework deal still has to be approved by Alstom shareholders as well as regulators.

The French government said it would not exercise an option to buy a 20 per cent stake in Alstom from industrial group Bouygues.

The transport businesses of Siemens and Alstom span the iconic French TGV and German ICE high-speed trains as well as signalling and rail technology. They have combined sales of €15.3 billion and earnings before interest and tax of €1.2 billion.

The global headquarters, rolling stock business and stock-market listing of the new entity will be in Paris and the signalling and technology business in Berlin.

The new company, with 62,300 employees, targets synergies of €470 million in four years at the latest after the closing of the deal, which is expected at the end of 2018.

The companies said their operations were largely complementary, with Alstom present in growth markets in the Middle East and Africa, India, and Central and South America, while Siemens was strong in China, the US and Russia.

Siemens stands to gain control of Alstom's main business, since all of Alstom's divisions deal with the railways and transportation industries.

Existing Alstom shareholders will be paid two special dividends: a control premium of €4 per share to be paid shortly after closing of the transaction and an extraordinary dividend of up to €4 per share to be paid out of the proceeds of Alstom's put options for its General Electric joint venture, "subject to the cash position of Alstom".

Finance minister Bruno Le Maire said on Tuesday that the French government welcomed the planned tie-up which would protect French jobs, and reiterated his support on Wednesday.

Speaking ahead of a French-Italian summit in Lyon, he said he hoped Europe could create a leading naval company similar to the one formed by the railway transaction.

France and Italy could reach a deal over the STX France shipyards at the meeting of the two countries' leaders, an official in French President Emmanuel Macron's office told Reuters on Monday.

Le Maire said he would visit Alstom's emblematic Belfort site to reassure workers over their jobs following the Siemens deal.

The new entity would create a European leader able to take on Chinese and world rivals, he said.

But the opposition worries that France will lose control of its TGV high-speed train - a symbol of national pride that has highlighted French engineering skill - and concerned about possible job losses.

"This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term," said Siemens chief executive Joe Kaeser.

Alstom's Poupart-Lafarge said, "Today is a key moment in Alstom's history, confirming its position as the platform for the rail sector consolidation."

Analysts at Deutsche Bank kept a "hold" rating on Alstom shares, saying extracting cost savings from the deal could be tricky.

"Politicians will also likely try to ensure some form of jobs protection in France (28 per cent of Alstom's workforce) and Germany (39 per cent of Siemens's workforce), making cost synergies difficult to extract," they wrote in a note.

The deal leaves out in the cold Canadian transportation group Bombardier, which also held talks with Siemens, Reuters' sources have said, and which faces a separate battle this week to protect jobs in Quebec and Northern Ireland.

China's CRRC, with annual revenue of about $35 billion, is bigger than Siemens Mobility, the rail and infrastructure division of the German conglomerate, Alstom and Bombardier Transportation combined.

Previously focused on China, it has won projects in Britain and the Czech Republic in the past year, and is eyeing the UK's High Speed 2 project, which will connect London with cities in the north of England.