EU Blocks French-German Rail Merger
The European Union Competition Commissioner, Margrethe Vestager, announced on Wednesday, February 13th, that Brussels would block the merger of France’s rail company Alstom with Germany’s Siemens. The intention of the merger was to create one large European train company that would be competitive with Chinese rail company CRRC.
CRRC itself was a product of a merger deal of two Chinese rail companies back in 2015. Merging the two companies together allowed CRRC to cut overlapping costs and spend more on research & development. Over the past few years, as a large global player, CRRC has been chasing overseas contracts.
Although Alstom and Siemens hoped that their merger would lead to more investment in research and development, EU’s competition commission is worried that the execution of the merger would lead to higher prices for consumers. It would also lead to higher prices for train signaling systems and for high-speed trains.
Unlike airlines, where a high level of competition stabilizes prices, railroad companies often use the same rail routes with the same main operator. This would give the creation of a single, large European train company easy ability to be a market dominator.
If the deal had been executed, the combined company would have expected around $17 billion in annual revenue.
However, according to a study conducted by the consulting firm McKinsey & Company, the majority of companies who went through mergers and acquisitions fell short of their revenue synergy expectations. On average, the difference between the goal and actual attainment was 23 percent.
McKinsey & Company stated that in their experience, “Companies tend to be a little haphazard when identifying revenue synergies. Lack of clarity in understanding where the sources of value are means that significant pools of opportunity are overlooked. Capturing revenue synergies calls for a thoughtful approach that identifies, evaluates, and prioritizes opportunities along three dimensions.”
Ultimately, Bruno Le Maire, the Finance Minister of France believes that this merger would be more beneficial for China. EU’s Competition Commission listed its competition concerns for the deal. Although Alstom and Siemens made proposals to address these concerns back in December, the commission did not find them to be sufficient.
Joe Kaser, chief executive officer of Siemens, expressed that "Europe urgently needs structural reform...protecting customer interests locally must not mean that Europe cannot be on a level playing field with leading nations like China, the United States, and others."
Just two months ago, 19 EU countries advocated for new measures to keep EU companies competitive on a global scale, particularly with Chinese and American companies.