Siemens AG and Bombardier Inc. are in talks to combine their train operations, people familiar with the matter said, potentially creating a business that could better compete with rising competition from China.

The proposed joint venture, which could be worth at least 10 billion euros (US$10.6 billion), would merge the firms’ train-making and signaling activities, said the people, asking not to be identified because the discussions are private. A deal could come by the middle of the year, one of the people said.

No final decisions have been made and any combination would require clearance from antitrust authorities and face potential opposition from unions, they said. Representatives for Siemens and Bombardier declined to comment.

Bloomberg
Bloomberg

Analysts from Societe Generale SA have valued Siemens’s mobility unit at about 7.2 billion euros, while Veritas Investment Research Corp. has said Bombardier’s 70 per cent stake in its transportation business is worth at least US$5 billion.

Talks between Bombardier and Siemens started earlier this year, the people said. A combination would help the companies stave off pressure from Chinese competitors, which are expanding internationally and threatening market share.

Antitrust Concerns

Bombardier sold a 30 per cent stake in its train business to fund manager Caisse de Depot et Placement du Quebec last year, valuing the unit at $5 billion and helping the Montreal-based firm raise capital as it faced a cash drain from delays for its new jets.

Still, antitrust concerns facing the two Europe-centered companies could be an obstacle to the deal. Siemens and Bombardier would also likely have to win over support from labor representatives, who would object to job cuts.

Siemens shares rose 1 per cent to 128.95 euros at 3:53 p.m. in Frankfurt trading. Bombardier rose 5 per cent to $2.33 in Toronto. Alstom SA, which had been speculated as a potential partner for Siemens, fell 3 per cent. A representative for Alstom declined to comment.

Slimming Siemens

Moving its mobility division into joint venture would further pare back the sprawling Siemens conglomerate, which until a decade ago consisted of more than dozen units making everything from mobile networks to light bulbs to heavy-duty industrial equipment.

Chief Executive Officer Joe Kaeser has spent recent years narrowing Siemens’s focus on energy, factory automation and industrial software. He has sold most of the light-bulb division and announced plans to list the health-care subsidiary, which makes medial scanners and other imaging equipment.

Siemens makes the ICE high-speed train which connects German cities such as Cologne, Berlin and Munich. The division also makes city trams and signaling equipment. Siemens’s mobility unit has been dogged for years by charges and severance payments as it cut employees, prompting recurring speculation that the company may seek a partner such as Bombardier or Alstom, the French maker of the TGV trains.

Siemens’s bid in 2014 to buy Alstom failed amid a competing offer from General Electric Co., which ended up buying Alstom’s energy-generation assets.

Bloomberg.com