March 29, 2024 8:04 AM

Bombardier applauds blocked merger of Siemens and Alstom

North America's leading train manufacturer Bombardier, based in Canada, seems likely to benefit from the blocked merger of Siemens and Alstom.

/ Published 5 years ago

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The European Commission’s choice to block the merger of Germany’s Siemens and France’s Alstom has left the two companies and both nation’s governments displeased. However, competitor Bombardier is praising the decision. The merger was claimed to be an attempt to balance out the power of the China Rail Construction Corporation. But, given that Bombardier once hoped to merge with Siemens and that China Rail received a great deal of cutting edge technology from Siemens and other European companies, the whole situation looks like a complicated mess that the involved parties brought on themselves.

Blocking the merger

Wednesday, February 6, European Union antitrust regulators blocked the merger of Siemens and Alstom leaving them to return to their competitive stances unless they take a long-term view and keep working for the merger.  EU Competition Commissioner Margrethe Vestager said that such decisions are “not forever” and that the two companies could return at a later time with new solutions. However, both the French and German governments seem likely to push for rules changes that would allow the merger to happen in the future.

The concept, backed by both companies and both governments, was to create a European company that could compete with the much larger China Rail Construction Corporation (CRCC). Canadian train manufacturer Bombardier, Inc. (TSE:BBD-B), the largest maker in North America, applauded the decision. However, that may well be due to the fact that it had hoped to merge with Siemens and was left on the outside to fend for itself.

Given that all three companies have collaborated on various deals over the years, one could look at this situation as one in which frenemies work together based on self-interest but cannot assume anything beyond what is finalized and agreed upon. However, the combination of Siemens and Alstom would have created a company with revenues of around $22.5 billion in comparison to Bombardier’s $8.5 billion from its transportation division. Analysts mostly see this decision as a plus for Bombardier.

China gets advanced train tech

It has been a bit over a decade since both Alstom and Siemens were making excited announcements about doing business in China. Both received contracts in 2004 and 2005 to supply trains to China. However, in signing the agreement, they also agreed to transfer technology to the Chinese. In choosing to hand over their best tech, they empowered the China CNR Corp. which merged with CSR Corp. and became CRRC Corp. CRRC is now the largest train manufacturer in the world and Europe helped provide the basis for that lead.

Yet both Siemens and Alstom are doing quite well and a Bloomberg Opinion analyst points out that CRRC’s huge revenues largely come from the domestic Chinese market. This analyst and other maintain that Bombardier is a bigger threat to both companies than CRRC. So it appears that the two companies were relying a bit on fear-mongering to get the go-ahead to create what would have become the dominant Western train company.

Bombardier may be its own worst enemy. (Photo by Alfredo Garcia Saz via Shutterstock)

Bombardier has its own problems

For its part, Bombardier may be its own worst enemy. Due to its difficulties meeting deadlines, Bombardier was passed over for a German deal and is on hold with New York’s Transit Authority, Swiss Federal Railways and the French National Railway Company until it works out its problems delivering their trains. In addition, quality issues have been raised by all three nations. This situation is probably why Bombardier named Danny Di Perna the new head of the transportation unit on February 7.

Given that around 50 percent of Bombardier’s income comes from its transportation division, its new leader has his work cut out for him. The stock once traded at over $25 and, since the 90s, has gradually descended to $2. One Motley Fool analyst says that despite lower lows, even contrarians should beware. Another notes that until Bombardier shows it can get the job done, “investors should consider any number of other growth opportunities that are available on the market at the moment.”

This rather sad state of affairs for the biggest North American train manufacturer suggests that even if they had not hoped to merge with Siemens, they would be happy about the Siemens/Alston merger being blocked. When a company cannot compete successfully in the marketplace, anything that undermines an opponent will help it survive its own incompetence. For the European Union’s part, the merger would have created a dominant company with no new competitors expected beyond those already in competition. And that would be an unhealthy situation for those relying on their services moving forward.

(Featured image by olrat via Shutterstock)

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