Rationale of the deal
The proposed Siemens-Alstom merger has raised antitrust flags because it would create a market leader that could control up to 60-80% of the EU market. Both companies compete across Europe in trains, maintenance, signaling and systems.
Less than 50% chances of approval
The chance of getting an antitrust approval remain unclear despite the political pressure from Germany and France to get the deal approved. Precedents from Bayer-Monsanto or Dow-Dupont suggest that large divestitures may be required and approval may still be obtained even after a first negative feedback on a proposed remedy plan.
Large divestitures likely needed to get approval
Siemens and Alstom will likely need to offer additional divestitures to get the EU approval. Yet, this could limit their capacity to compete with China´s CRRC and achieve synergies, affecting the rationale of the deal. Divestitures are needed in rolling stock and signalling solutions. The companies have reportedly offered to sell Alstom’s Pendolino trains or Siemens’ Velaro models, as well as a five-year license for the new Velaro Novo line.
At this point, the parties are likely devising a new remedy proposal to change the regulator’s opinion on the deal. They may have approached potential buyers for the assets to be divested in Europe and elsewhere. Hitachi, Bombardier and CAF are some of the companies that have shown interest in acquiring some of the assets. Yet, the European Commission is likely to favour one single buyer for all assets as this may be the best way to create a strong competitor vis-a-vis the merged entity.
Decision likely in 1Q
The statutory deadline for a decision is February 18, set after the parties submitted remedies on December 12. Under EU law, when companies in a merger offer concessions, the timeline is normally extended by 15 working days. It is unlikely that this deadline will be pushed back again, even if the parties need to beef up the remedy proposal. The European Commission and the parties may work a new proposal within the timeframe established.
