Train Makers Explore Merger -- WSJ
22 July 2017 - 8:02AM
Dow Jones News
By Ben Dummett and Jacquie McNish
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 22, 2017).
Siemens AG and Bombardier Inc. are in advanced talks to combine
their train-making businesses, according to people familiar with
the matter, as they face stiffer competition from consolidating
rivals in China.
Germany's Siemens, one of the world's biggest industrial
conglomerates, and Canada's Bombardier, which is also a major plane
maker, are discussing possibly creating two joint ventures from
their train operations. One unit, controlled by Siemens, would hold
the signaling operations of the two companies. The second, which
Bombardier would majority own, would oversee the rolling-stock
operations. Signaling equipment is used to keep trains clear of
each other, and rolling stock centers on train manufacturing.
A spokesman for Siemens declined to comment.
The joint ventures would have combined annual sales of about
EUR15 billion ($17.5 billion) based on 2016 results of both firms'
train divisions, according to one person familiar with the
discussions.
The companies expect to reach a deal in the next couple of
weeks, though one person familiar with the negotiations said there
are still some key issues that need to be resolved. As in all
complex merger negotiations, talks could collapse without an
agreement. The discussions were previously reported by
Bloomberg.
The talks come at a time when the 2015 merger of Chinese train
makers CSR Corp. and China CNR is forcing rivals to gain scale,
which enables them to boost results by cutting costs and winning
additional customers. In 2016, Bombardier's transportation business
reported its revenue fell 9% from a year earlier to $7.57 billion.
Earnings before interest and taxes, a profit measure, also fell.
Siemens's train business has fared better, as its revenue and
profit grew in the fiscal year ended Sept. 30. Still, orders fell
23% in the year.
Siemens is the leading supplier of train-signaling equipment,
accounting for about 25% of the global market, compared with
Bombardier's estimated 10% share, according to a recent report by
the National Bank of Canada. The report said overlap between the
two companies' rolling-stock businesses could "present some
challenges" with competition authorities. The train-manufacturing
arms of Bombardier and Siemens are both based in Germany, where the
two rank as the country's largest suppliers, the report said.
Bombardier had signaled as far back as 2015 that it was
considering a possible joint venture amid consolidation in the
sector. At the same time, the company has stressed that it wouldn't
sell the train business outright. Bombardier has long valued the
train division as a counterbalance to its aerospace division. Train
making tends to perform better during economic downturns, when
governments increase spending on rail and other infrastructure
projects, while demand for aircraft falters. The converse often
holds during times of economic expansion.
--Christopher Alessi contributed to this article.
Write to Ben Dummett at ben.dummett@wsj.com and Jacquie McNish
at Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
July 22, 2017 02:47 ET (06:47 GMT)
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