Alstom, Siemens to merge rail operations to counter European advance of China’s CRRC

Above, a scale model of an AGV high speed train with the logo of Alstom during the company’s presentation of its 2016-2017 annual results in Saint-Ouen, near Paris in May 2017. (Reuters)
Updated 27 September 2017
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Alstom, Siemens to merge rail operations to counter European advance of China’s CRRC

MUNICH/PARIS: German industrial group Siemens and French rival Alstom agreed to merge their rail operations, creating a European champion to better withstand the international advance of China’s state-owned CRRC Corp.
Siemens will own 50 percent plus a few shares of the joint venture, to be called Siemens Alstom, while Alstom will supply Henri Poupart-Lafarge as chief executive, helping to counter criticism that France is giving up control of another national industrial icon.
The non-executive chairman will come from Siemens.
The framework deal, which still has to be approved by Alstom shareholders as well as regulators, is a Franco-German industrial breakthrough for French President Emmanuel Macron but is a move that has riled opposition politicians.
Their worries center on France losing control of its TGV high-speed train — a symbol of national pride that has highlighted French engineering skill — and possible job losses.
Finance Minister Bruno Le Maire said on Tuesday that the French government welcomed the planned tie-up, which he said would protect French jobs.
The French state said it would not exercise an option to buy a 20 percent stake in Alstom from industrial group Bouygues.
The Siemens and Alstom transport businesses span the iconic French TGV and German ICE high-speed trains as well as signaling and rail technology. They have combined sales of €15.3 billion (SR67.6 billion) and earnings before interest and tax of €1.2 billion.
“This Franco-German merger of equals sends a strong signal in many ways. We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term,” said Siemens CEO Joe Kaeser.
Alstom’s Poupart-Lafarge said: “Today is a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation.”
Analysts at Deutsche Bank kept a “hold” rating on Alstom shares, saying extracting cost savings from the deal could be tricky.
“Politicians will also likely try to ensure some form of jobs protection in France (28 percent of Alstom’s workforce) and Germany (39 percent of Siemens’workforce), making cost synergies difficult to extract,” they wrote in a note.
The deal leaves out in the cold Canadian transportation group Bombardier, which also held talks with Siemens, sources have said, and which faces a separate battle this week to protect jobs in Quebec and Northern Ireland.
China’s CRRC, with annual revenue of about $35 billion, is bigger than Siemens Mobility, the rail and infrastructure division of the German conglomerate, Alstom and Bombardier Transportation combined.
Previously focused on China, it has won projects in Britain and the Czech Republic in the past year, and is eyeing the United Kingdom’s High Speed 2 project, which will connect London with cities in the north of England.
Siemens will receive newly issued shares in the combined company representing 50 percent of Alstom’s share capital and warrants allowing it eventually to acquire another 2 percent of Alstom shares.
However, the deal prevents Siemens from owning more than 50.5 percent of Alstom for four years after closing, and includes “certain governance and organizational and employment protections”, Siemens and Alstom said in their statement.
The deal is unanimously supported by Alstom’s board, Siemens’ supervisory board and Alstom shareholder Bouygues, the companies said.


BMW plans massive cost cuts to keep profits from sputtering

Updated 57 min 12 sec ago
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BMW plans massive cost cuts to keep profits from sputtering

  • ‘Our business model must remain a profitable one in the digital era,’ chief executive Harald Krueger said
  • Total number of employees is set to remain flat at around 135,000 worldwide

MUNICH: German high-end carmaker BMW warned Wednesday it expects pre-tax profits “well below” 2018 levels this year as it announced a massive cost-cutting scheme aimed at saving $13.6 billion (€12 billion) in total by 2022.
A spokesman said that “well below” could indicate a tumble of more than 10 percent.
The Munich-based group’s 2019 result will be burdened with massive investments needed for the transition to electric cars, exchange rate headwinds and rising raw materials prices, it said in a statement.
Meanwhile it must pump more cash into measures to meet strict European carbon dioxide (CO2) emissions limits set to bite from next year.
And a one-off windfall in 2018’s results will create a negative comparison, even though pre-tax profits already fell 8.1 percent last year.
Bosses expect a “slight increase” in sales of BMW and Mini cars, with a slightly fatter operating margin that will nevertheless fall short of their 8.0-percent target.
“We will continue to implement forcefully the necessary measures for growth, continuing performance increases and efficiency,” finance director Nicolas Peter said at the group’s annual press conference.
BMW aims to achieve €12 billion of savings in the coming years through “efficiency improvements” including reducing the complexity of its range.
“Our business model must remain a profitable one in the digital era,” chief executive Harald Krueger said.
This year, most new recruits at the group will be IT specialists, while the total number of employees is set to remain flat at around 135,000 worldwide.
Departures from the sizeable fraction of the workforce born during the post-World War II baby boom and now reaching retirement age “will allow us to adapt the business even more to future topics,” BMW said.
All the firm’s forecasts are based on London and Brussels reaching a deal for an orderly Brexit and the United States foregoing new import taxes on European cars.
“Developments in tariffs” remain “a significant factor of uncertainty” in looking to the future, finance chief Peter said, adding that “the preparations for the UK’s exit from the EU will weigh on 2019’s results as well.”
In annual results released ahead of schedule last Friday, BMW blamed trade headwinds and new EU emissions tests for net profits tumbling 16.9 percent in 2018, to €7.2 billion.