Alstom enter talks with Siemens over rail merger

[daikilo]

E) this is going to be cultural train wreck

I have worked in a pan-European company for many years and it has been culturally very successful. What has been an administrative complication are work laws and participation where harmonising has been virtually impossible and certainly unaffordable, despite the EU.

What is important is that the entire workforce must feel they can understand and are comfortable with the big picture, even if their part in it may be painful and what actually happens is not quite what has been published by the media.

 

[43096]

Judging by sales of the Vectron and the lack of sales (in Europe) of the Prima I can't see this happening in any rational world.

That's my point. With the French involved rational goes out of the window. I note the rolling stock division will have its HQ in Paris...

 

[Mikey C]

It'll be interesting how this affects the bids for 2 major programmes coming up, the trains for HS2 and the NTfL tube trains, where presumably both had been preparing separate bids.

 

[Olaf]

This points to a potentially difficult time ahead as this seems to be to a large part by EU, particularly French, nationalistic protectionism. Merging two different cultures is not to be underestimated, it's apparently the biggest reason why mergers do not work or achieve the potential they were supposed to.

You are absolutely right; it is a particular problem with every aspect of working with French businesses - as many will know.

In the case of the Germany Unions, they are usually working hand in hand with Corporates and have played a key part in holding down wage increases for more than ten years.

 

[Olaf]

A) It don't believe those cost savings will be achieved either

B) They both have a lot of issues to deal with before even worrying about the merger (Higher cost /than BT, Hitachi at the top quality end of the market and new products not having quite the right specification for buyers.

C) lots of that Alstom margin has come from juicy contracts (e.g.the maintain part of build and maintain /turn key) the type of which are far fewer on the ground now, so the actual rolling stock build margin is appalling based on their cost base.

D) what happened to the SFO investiagations into a couple of Alstom's non european contracts wins. Siemens has very strict tendering policies after a previous knuckle wrapping... Most of Alstom sales tactics outside the EU may need to be binned!

E) this is going to be cultural train wreck

I fully agree; the problems are legion, but as always in the case of the EU they all get glossed-over.

 

[Olaf]

I have worked in a pan-European company for many years and it has been culturally very successful. What has been an administrative complication are work laws and participation where harmonising has been virtually impossible and certainly unaffordable, despite the EU.

What is important is that the entire workforce must feel they can understand and are comfortable with the big picture, even if their part in it may be painful and what actually happens is not quite what has been published by the media.

Unfortunately this organisation is going to be in a state of flux for about four to five years with many people having to loose their jobs in order to make it work and come anywhere close to achieving it's objectives.

It is going to set German Teams against French Teams and vis versa, all up and down the new organisation - there are few moves that can be made that are not seen to favour the 'other side', and if you are not a French or German operation, watch out.

 

[Olaf]

It'll be interesting how this affects the bids for 2 major programmes coming up, the trains for HS2 and the NTfL tube trains, where presumably both had been preparing separate bids.

Yes, interesting is'nt it. We could open up the bidding process and invite the Chinese to add competition to bid - oh dear - that would be why they are going to put their organisations through this to avoid.

 

[Olaf]

This article was published before the deal was announced, however it has some interesting numbers including a schematic illustrating the differences in performance of the three concerns along with details on CRRC and comparative costs of vehicle manufacture:

Building an Airbus on Rails
https://global.handelsblatt.com/companies-markets/building-an-airbus-on-rails-831570?ref=NzgzMjI2
- 2017-09-27

- Siemens and Alstom want to merge their train divisions as a counterweight to China’s CRRC, the world’s biggest train company, which is making progress in Europe
- Siemens CEO Joe Kaeser has long argued for a Franco-German alliance in train-building. Such a cooperation would mimic that of planemaker Airbus but would require bitter rivals Siemens, which produces Germany’s ICE trains, and France’s Alstom, maker of the TGV, to become friends.
- China’s CRCC is ratcheting up the pressure on its European rivals and forcing them to consider consolidating. The company was created by a state-directed merger in 2015
- it [CRCC] is now aiming for the lucrative European market. Its revenues topped €18 billion ($21.4 billion) last year, more than Siemens and Alstom put together. The Chinese company’s lower cost base poses a genuine threat to European manufacturers: a Siemens-built high-speed train costs around €40 million, but CRRC can make one for just €19 million.
- It’s [CRCC] currently completing a takeover of the Czech train manufacturer Skoda after previously only scooping up smaller European firms such as German parts supplier Bochumer Verein. Skoda will be CRCC’s largest prize to date and the Chinese company is thought to covet Skoda primarily for its detailed knowledge of the European regulatory environment.
- The Siemens Mobility division, which includes signaling technology, is of comparable size, turning over €7.8 billion last year. For many years the division struggled to deliver profits, but has recently upped its performance, now enjoying an operating profit margin of 8.7 percent. But Mr. Kaeser has long stressed the strategic need for a strong global number two to CRRC.
- French sources suggest there should be no political problems with any merger, with both the French and German governments keen to see European consolidation. But politicians will not have the final word on competition questions.
- Either deal would fit in with Mr. Kaeser’s general strategy for Siemens. He has said he wants to turn the industrial giant from an unwieldy oil tanker into a fleet of fast ships. Siemens’ wind division has already been merged with the Spanish company Gamesa and floated on the stock exchange. Medical technology unit Healthineers will be spun off next year.
- But Siemens labor unions regard any merger with skepticism. “Breaking up the company any further is risking the brand and the company,” Jürgen Kerner and Birgit Steinborn, leading labor representatives at Siemens, said in a statement.

Even with the merger completing successfully, CRRC has a significant advantage on vehicle manufacturing costs which the Alstom-Siemens organisation will struggle to match - even with the contracting out/relocation of vehicle assembly to automated shops in Eastern EU countries.

It also highlights that the only real long-term benefit comes to Siemens by it's gaining control of a key European competitor in the Digital/Signalling space - the only business division that has any reasonable medium to long-term prospects within the new organisation.

 

[LNW-GW Joint]

Even with the merger completing successfully, CRRC has a significant advantage on vehicle manufacturing costs which the Alstom-Siemens organisation will struggle to match - even with the contracting out/relocation of vehicle assembly to automated shops in Eastern EU countries.

Siemens has just won the 330-vehicle Israel EMU order against bidders including Škoda/CRRC.
http://www.railwaygazette.com/news/...s-selected-for-israel-railways-emu-order.html

Alstom, Bombardier Transportation, Hitachi Rail Italy, Siemens, Škoda Transportation*and Stadler had submitted best and final offers for the EMU contract in September 2017; it is understood that Alstom and Siemens made it to the final shortlist.

 

[AlexNL]

This thread is old, but there have been some significant developments ever since the merger was announced.

Various operators (infrastructure and trains) have raised their concerns, as the Siemens Alstom company would have a near monopoly in some areas. National competition authorities have also voiced their concerns. Meanwhile, the governments of France and Germany have expressed their support for the proposed merger

Siemens and Alstom responded by saying that they'd be willing to divest or license part of their high speed train and signalling portfolios, hoping this would satisfy the European Union.

It seems like it does not, according to Reuters the EU are planning to block the merger. This would be announced next month.

https://mobile.reuters.com/article/amp/idUSKCN1PC2AY

 

[TRAX]

Is the EU working for the Chinese or what

 

[AlexNL]

No, but the EU aren't convinced that creating a near-monopoly is the answer to the Chinese threat.

Network Rail is one of the organisations which have raised concerns about the proposed merger. The new company would have a 93% share on the UK signalling market.

https://www.google.com/amp/s/amp.ft.com/content/90cc4452-d92f-11e8-ab8e-6be0dcf18713

 

[ivanhoe]

Monopolies are not good in the Private sector. I have concerns about this. It’s the worse kind of monopoly in which two Nations are working together with two private companies. It ticks no boxes for me.

 

[TRAX]

Do you know how capitalism works ? There is a 22 billion € gap in revenue between the first (CRRC from China) and the second suppliers, how can anyone not see this as a threat ?
Once deciders realise they can buy a CRRC train for a quarter of the price of a Siemens train, it’s a red carpet for CRRC.
Chinese companies are actively (and quickly) building factories in Europe now, and the day a German company will realise they can buy a German-built CRRC train for half the price of a Siemens train, it’s the start of a dark future for any European Siemens factory.
And here you’ll have your monopoly. A CRRC monopoly.

 

[AlexNL]

That's already happening: Deutsche Bahn have ordered hybrid locomotives built by CRRC.

You don't fight off a competitor by creating a new monopolist. You fight off a competitor by offering better products. If you can't do that, then you've got no reason for the business to continue existing.

 

[WatcherZero]

I heard the opposite, they were happy to make signalling divestments but were balking at the regulators suggestion they should share their high speed train technology with their rivals.

 

[TRAX]

That's already happening: Deutsche Bahn have ordered hybrid locomotives built by CRRC.

You don't fight off a competitor by creating a new monopolist. You fight off a competitor by offering better products. If you can't do that, then you've got no reason for the business to continue existing.

Thinking that the deciding factor for buying new trains is about who makes the best product is pretty naive.
Heck, the UK wants to leave the EU, why would the Union take into account what Network Rail has to say about the Siemens-Alstom merger ? The two biggest European railway suppliers are in danger, and we should let them fight the threat separately just because of the UK’s history of decisions ?

 

[LNW-GW Joint]

It's worth noting that the predicted purchase by CRRC of Czech manufacturer Škoda Transportation has failed to happen, it has been bought by Czech group PPF instead.
So the Chinese advance into Europe is paused for now.
But as in other sectors, we have a giant Chinese manufacturer chasing global business because its domestic business is slowing.
The boom in Chinese high-speed railway building cannot continue at the current frenetic pace.

Network Rail can hardly complain about monopoly suppliers.
In any case it still has Bombardier and Hitachi as signalling suppliers.
If this merger attempt fails, the industry will seek consolidation elsewhere (this phase began with an attempt to merge Siemens' and Bombardier's rail interests).

 

[68000]

It

In any case it still has Bombardier and Hitachi as signalling suppliers.

What do Bombardier and Hitachi have or do for rail infrastructure in Britain?

NR and the ORR are objecting to the merger because Siemens and Alstom between them have a near monopoly in the interlocking and control system market in Britain and the retro compatibility of those products

 

[LNW-GW Joint]

What do Bombardier and Hitachi have or do for rail infrastructure in Britain?
NR and the ORR are objecting to the merger because Siemens and Alstom between them have a near monopoly in the interlocking and control system market in Britain and the retro compatibility of those products

Hitachi, following its acquisition of Ansaldo of Italy, and with its own TMS system, is now a major player in signalling.
Apart from the Cambrian ETCS installation, they have a part of the Thameslink core ATO solution.
That also makes "Manchester South" signalling centre a Hitachi installation.
Bombardier has a signalling operation in Plymouth I think, and is a major ETCS player as well outside the UK.
The "Digital Railway" will surely be moving towards ETCS and away from ex-BR technology and dependence on particular suppliers?

 

[43096]

That's already happening: Deutsche Bahn have ordered hybrid locomotives built by CRRC.

You don't fight off a competitor by creating a new monopolist. You fight off a competitor by offering better products. If you can't do that, then you've got no reason for the business to continue existing.

DB have ordered four locos from CRRC, for Berlin S-Bahn works trains, so not exactly a major breakthrough. In contrast, DB have also just ordered another 40 Vectrons from Siemens with 60 more options.

If the Siemens/Alstom tie up is blocked, I personally think Siemens have dodged a bullet. As one of Roger Ford’s “Informed Sources Laws” has it, “Never engage in joint ventures with the French”. The French will always take, to the detriment of the other partner, and to the detriment of the whole enterprise. See GEC-Alsthom as an example.

 

[hwl]

I heard the opposite, they were happy to make signalling divestments but were balking at the regulators suggestion they should share their high speed train technology with their rivals.

I've heard the opposite but in slight more complex way.

They only wanted to make very limited signalling divestments that often involved unloading units providing and supporting legacy products , thus taking a short term hit to turnover but also off loading plenty of future issues when those legacy product dwindle. They very much wanted to keep hold of all the juicy signalling bits as there is where a good chunk of value lies. Forcing them to dicvest toose will cause so rethinking. Since the merger talks started Siemens have been doing well in terms of new order wins but Alstom less so so some renegotiation probably the longer it drags on.

 

[WatcherZero]

If the Siemens/Alstom tie up is blocked, I personally think Siemens have dodged a bullet. As one of Roger Ford’s “Informed Sources Laws” has it, “Never engage in joint ventures with the French”. The French will always take, to the detriment of the other partner, and to the detriment of the whole enterprise. See GEC-Alsthom as an example.

Wasn't that basically run from the UK from 1989 until 1998 and the long drought in rolling stock orders killed its business and then the British (GEC) sold their shares and it moved to France? GEC sold up at the right time as within 3 years the value of the business declined by 90%.

 

[TRAX]

DB have ordered four locos from CRRC, for Berlin S-Bahn works trains, so not exactly a major breakthrough. In contrast, DB have also just ordered another 40 Vectrons from Siemens with 60 more options.

If the Siemens/Alstom tie up is blocked, I personally think Siemens have dodged a bullet. As one of Roger Ford’s “Informed Sources Laws” has it, “Never engage in joint ventures with the French”. The French will always take, to the detriment of the other partner, and to the detriment of the whole enterprise. See GEC-Alsthom as an example.

Except Siemens will be the majority over Alstom...

 

[43096]

Except Siemens will be the majority over Alstom...

And? I wouldn't trust the French at all in such an alliance.

 

[TRAX]

I really can’t see any solid and credible basis for your claim here.

 

[WatcherZero]

Alstom and Siemens have submitted more concessions to the regulator for consideration. They are being tight lipped but believed to include the period Siemens will share its high speed train technology with rivals being increased from 5 years to 10 years.

 

[whhistle]

NR and the ORR are objecting to the merger because Siemens and Alstom between them have a near monopoly in the interlocking and control system market in Britain and the retro compatibility of those products

Yeah but this is where competition is stupid.
McDonalds has the monopoly over a BicMac.
The BBC has the monopoly over Strictly Come Dancing.
Channel 5 has the monopoly over Neighbours.

Can't think of any more but there are loads of things in life that you have to use just one company as it isn't available elsewhere.

 

[ac6000cw]

McDonalds has the monopoly over a BicMac.
The BBC has the monopoly over Strictly Come Dancing.
Channel 5 has the monopoly over Neighbours.

Those are specific brands/products, not monopoly suppliers of a product type e.g. there are many, many suppliers of hamburgers and producers of TV programmes.

The problem is that there are very few suppliers of UK-spec signal interlocking and control equipment - Siemens and Alstom dominate that specific market, so merging them together would create a near-monopoly supplier to NR.

(One of the reasons BR used to buy electric traction equipment from both GEC-Alstom and Brush for e.g. fitting into EMUs built by BREL, was to keep both of them in the market and hence avoid ending up in a monopoly supplier situation).

 

[LOL The Irony]

Those are specific brands/products, not monopoly suppliers of a product type e.g. there are many, many suppliers of hamburgers and producers of TV programmes.

The problem is that there are very few suppliers of UK-spec signal interlocking and control equipment - Siemens and Alstom dominate that specific market, so merging them together would create a near-monopoly supplier to NR.

(One of the reasons BR used to buy electric traction equipment from both GEC-Alstom and Brush for e.g. fitting into EMUs built by BREL, was to keep both of them in the market and hence avoid ending up in a monopoly supplier situation).

Well if Bombardier and Hitachi would make better products, there wouldn't be a monopoly issue.