Sources Say EU Will Derail Siemens & Alstom’s Plan to Merge For European Rail Company

FILE PHOTO: French High Speed Train (TGV) made by French train maker Alstom stops next to a German High Speed Train (ICE) made by Siemens at Munich’s railway station June 16, 2014. REUTERS/Lukas Barth

BRUSSELS (Reuters) – Siemens (SIEGn.DE) and Alstom’s (ALSO.PA) plan to create a European rail champion to take on a Chinese rival has failed to win over EU antitrust regulators despite German and French backing, people familiar with the matter said on Friday.

The EU veto, to be announced early next month, could push Siemens to float its own in-house rail technology division, called Siemens Mobility, while keeping a stake.

The rail merger deal would have created the world’s second largest rail company with combined revenues of around 15 billion euros ($17.05 billion), roughly half the size of China’s state-owned CRRC Corp Ltd (601766.SS) but twice the size of Canada’s Bombardier (BBDb.TO).

Germany and France support the deal, saying it would help secure the competitiveness of the European rail industry. However, European Competition Commissioner Margrethe Vestager has said Europe cannot build industrial champions by undermining competition.

Her veto could spur the two countries to step up efforts to modify the bloc’s competition rules, among the most powerful in the world, to take into account unfettered non-EU rivals and U.S. tech giants, although it will not be an easy battle.

German conglomerate Siemens has already offered to license parts of its high-speed train business and sell parts of its signaling operations after the European Commission voiced concerns.

Siemens had initially offered to share its high-speed train technology, which allows trains to travel faster than 250 kilometers per hour, for five years with third parties.

The EU competition enforcer, however, wanted a longer duration, a demand which the company rejected. Siemens’ Velaro is the world’s fastest high-speed train.

There were also competition concerns regarding the companies’ market power in rolling stock and signaling. The Commission – which has rejected an imminent Chinese threat in the rail industry – Siemens and Alstom all declined to comment.

The deal triggered criticism from the German cartel office, Britain’s CMA competition watchdog and its counterparts in the Netherlands, Belgium and Spain, which say concessions from the companies fell short.

The regulators expressed concerns about the supply of very high-speed rolling stock for trains such as the Eurostar which links the UK, France, Belgium and the Netherlands. Alstom unions have also dismissed the Chinese threat.

The global rail market is dominated by China’s CRRC, as this graphic shows:

Reporting by Foo Yun Chee, additional reporting by Caroline Copley in Frankfurt, Sudip Kar-Gupta and Geert de Clercq in Paris; editing by Louise Heavens and Jan Harvey

Source: Reuters