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Failed Siemens-Alstom merger good news for Bombardier, analysts say

Bombardier said it was pleased with the European Commision’s decision to prohibit the Siemens-Alstom merger. (Canadian Press)

The European Commission’s decision to prohibit the blockbuster merger of two European rail giants could end up being positive for Bombardier Inc., according to some analysts.

On Wednesday, the European Commission blocked the proposed merger between Germany’s Siemens AG and France’s Alstom SA, saying the two companies were unwilling to address serious competition concerns.

“Without sufficient remedies, this merger would have resulted in higher prices for the signalling systems that keep passengers safe and for the next generations of very high-speed trains,” Commissioner Margrethe Vestager said in a statement.

The decision was met with disappointment from Siemens, Alstom and the French and German governments – but applauded by Bombardier.

Bombardier released a statement Wednesday that said the company was pleased that the European Commission prohibited the merger.

“The Commission has been clear that the proposed merger failed to meet the requirements of European Union competition law,” Daniel Desjardins, the company’s senior vice president and general council, said in a statement.

“It would have severely undermined the health and competitiveness of the whole European rail market, leaving European consumers, both as rail users and taxpayers, to pay the price.”

Siemens and Alstom had announced last September that they planned on merging rail operations in an effort to compete with China Rail Construction Corporation (CRCC), a Chinese-government supported rail company that is seen as a threat to the established players in the rail industry. Siemens had initially been eyeing Bombardier as a potential partner, but negotiations seemingly fell apart and it instead opted to go with Alstom.

While Bombardier has repeatedly dismissed any concerns related to the merger, many analysts questioned how it would impact the company’s ability to compete on future projects. Siemens and Alstom would have had combined revenues of about $22.5 billion, while Bombardier’s transportation division brought in $8.5 billion in revenues in 2017.

“I think a merger would have made things more challenging for Bombardier with winning signalling business, because Siemens and Alstom would have been a pretty dominant player there,” said National Bank of Canada analyst Cameron Doerksen.

“So I would view it as positive for Bombardier.”

Germany’s Berenberg Bank said in a note that the failed deal could put a separate deal between Alstom and Bombardier back in play, according to a Reuters report. A tie-up with Bombardier’s transportation business could be an “interesting alternative that Alstom should explore,” the analysts said.

But AltaCorp Capital analyst Chris Murray doesn’t see anything imminent on the horizon in terms of rail mergers.

“Bombardier is very well positioned to be a participant in any kind of consolidation that happens, but that being said, I don’t think there is anything imminent or anything immediate that needs to happen,” he said.

“Would a different combination, potentially one involving Bombardier, be more palatable to the European Union’s competition commissioner? It’s hard to say.” 

Bombardier’s stock closed at $2.05 on Wednesday, an increase of 6.22 per cent.

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