German industrial giant Siemens AG and French train-maker Alstom SA are in talks to create a European rail transportation powerhouse to better rival strong competition from China.
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France's Alstom, which makes trains and buses, said Friday it was in discussions to combine its operations with the mobility unit of Siemens. The German company confirmed the talks but didn't provide details.
A combination would create a European transportation business with about $18 billion in annual sales. Alstom had sales of EUR7.3 billion ($8.7 billion) in the financial year ended March 31. Siemens's mobility unit had EUR7.8 billion in revenue last year. Under the combination, Siemens would move its mobility operations into Alstom while taking control of the French entity, said a person familiar with the plans.
Western train makers have been feeling pressure to gain scale after the 2015 merger of Chinese train makers CSR Corp. and China CNR. That tie-up has enabled the Chinese entity to win business by cutting costs. The Chinese company had about $34 billion in sales last year.
China has invested massively in high-speed rail, helping fuel growth of its train makers.
Alstom Chief Executive Henri Poupart-Lafarge early this year said the train-making industry would "go through some kind of consolidation."
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Siemens has been looking for ways to gain heft for some time. The company also has held talks with Bombardier Inc. about joining their train-making business. Siemens wouldn't comment on whether discussions with Alstom meant Bombardier talks had stalled. A Bombardier spokesman declined to comment.
The talks with Bombardier, which has its rail business based in Germany, are continuing and far advanced, a person familiar with discussions said Friday. Under that deal's structure, Siemens would control a joint-venture focused on lucrative rail-signaling operations while Bombardier would have a majority stake in a partnership overseeing the train-making business, known as rolling-stock. The combined sales of a Siemens and Alstom tie-up would be slightly larger than one involving the German company and Bombardier.
Merging French and German train entities could have political appeal in Berlin and Paris. German Chancellor Angela Merkel and French President Emmanuel Macron have enjoyed a close relationship. France and Germany years ago pooled their commercial aerospace activities to create Airbus SE, the world's No. 2 plane maker after Boeing Co.
Siemens and Alstom three years ago held talks about merging their energy assets in the face of a proposal by General Electric Co. to buy the French company's power generation business. The German overture was welcomed by politicians in Paris, though GE eventually won out, leaving Alstom focused on transportation.
Alstom said in a statement that "no final decision has been made" on a transport deal with Siemens. "Discussions are ongoing and no agreement has been reached," the company based on the outskirts of Paris said.
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(END) Dow Jones Newswires
September 22, 2017 14:54 ET (18:54 GMT)