Siemens' proposal to swap its trains for Alstom's power generation and transmission assets looks compelling from a strategic point of view. But it is also fraught with uncertainties, due notably to antitrust concerns. Regulatory scrutiny could delay or even scupper a Franco-German deal. Alstom shareholders looking for quick relief may prefer General Electric, notwithstanding the French government's overt hostility to the US suitor.
The American group is reportedly willing to pay $13 billion (euro 9.2 billion) for Alstom's power assets - 70 per cent of the group's sales. A better capitalised Alstom could then focus on making cutting-edge, high-speed trains such as the TGV. Siemens is putting a slightly higher price tag on Alstom's power business. Moreover, it offers to hand over its own train-making assets, plus cash. This would turn Alstom into the world's third-largest maker of rail vehicles, leapfrogging Canadian rival Bombardier, according to German consultancy SCI Verkehr.
The biggest synergy potential is in R&D expenditure. Consolidating the light and suburban rail assets could also bring further cost savings. Siemens would benefit in several ways. It would keep its big American competitor out of its key markets in Europe. With a large overlap in Siemens' and Alstom's power generation, there is potential for cost-cutting and synergies. Getting rid of the train division would fix one of Siemens' longstanding headaches. The unit is notorious for its technical problems and repeated delays. Over the last two years, Siemens' provisions on this business amounted to euro 357 million.
For Europe's antitrust authorities, a trains-for-turbines swap might just be too convincing by half. In western Europe, the combined market share in the rolling stock business is poised to rise to 49 per cent by 2015, SCI reckons. Alstom would get control over one of its toughest competitors. In 2010, for instance, it lost out to Siemens on a euro 700-million order for new Eurostar trains.
One might counter-argue that the strict European perspective is too parochial. On a global stage, Siemens and Alstom together control only 20 per cent of the market, facing strong competition from Japan and China. For shareholders - and from an industrial policy viewpoint - one strong European supplier might be better than two limping ones. But Europe's antitrust authorities may choose to jump on a different train.
