LONDON, MONTREAL (Reuters) – The European Commission’s decision to block a tie-up between Alstom and Germany’s Siemens is fueling speculation about potential merger talks between France’s Alstom and Canada’s Bombardier, lifting both companies’ shares on Wednesday. FILE PHOTO: The logo of Alstom is seen on the company’s TGV high-speed train factory in Belfort, France, February
LONDON, MONTREAL (Reuters) – The European Commission’s decision to block a tie-up between Alstom and Germany’s Siemens is fueling speculation about potential merger talks between France’s Alstom and Canada’s Bombardier, lifting both companies’ shares on Wednesday.
FILE PHOTO: The logo of Alstom is seen on the company’s TGV high-speed train factory in Belfort, France, February 6, 2019. REUTERS/Vincent Kessler
The EU vetoed the Alstom-Siemens deal on concerns about the merged companies’ large share of the European railway market even after they had offered concessions, in a widely expected decision.
The deal’s collapse helped Bombardier escape the creation of the world’s second largest rail company that would be roughly twice its size and fueled talk that the Canadian plane and train maker could emerge as an alternative partner for a tie-up.
“It gives them a better set of options,” said Toronto-based AltaCorp analyst Chris Murray. “Ultimately the need to consolidate in the industry has not gone away.”
Passenger rail companies are pursuing mergers to reduce costs through scale as part of a broader trend toward consolidation in a market dominated by China’s state-owned CRRC, the world’s largest train maker.
Following the news, Berenberg analysts upgraded Alstom to a ‘buy’ rating and set a new price target of 42 euros ($47.9), noting that Alstom may now seek an alternative deal with Bombardier’s Berlin-based transportation division.
“We believe there is a higher chance for anti-trust approval than the Siemens/Alstom tie-up due to lower European market share in high speed rail and signalling,” Berenberg said in a note to clients. “This has been the main push back from the EC.”
Bombardier, which sources said held its own failed merger talks with Siemens in 2017, would not specifically discuss future merger prospects or say how the collapse of the Alstom-Siemens merger impacts the company.
“We will remain focused on developing Bombardier Transportation, with the objective of making it a $10B business by 2020 and, as we have always said, we will keep looking at opportunities to create the best value for our shareholders,” Bombardier said in a statement.
An Alstom spokesman said any future rail consolidation in Europe would be examined in light of the failed Siemens-Alstom tie-up.
“If the rules do not change, it is difficult to imagine the consolidation of our sector in Europe.”
Alstom stock in Paris was up 4 percent at 12:37 EST (1737 GMT) after hitting its highest since Dec. 18, while Siemens shares in Frankfurt were down 0.7 percent. Bombardier shares rose 5.7 percent in midday trading in Toronto.
Reporting by Josephine Mason, Thyagaraju Adinarayan, Helen Reid and Julien Ponthus, Editing by Helen Reid and Tom Brown