Alstom and Siemens Announce “Merger of Equals”

Alstom and Siemens announced on the evening of September 26 that they had signed a memorandum of understanding for a merger of Siemens’ Mobility business with Alstom.

The transaction is expected to close at end of 2018. It would take the form of a contribution in kind of the Siemens Mobility business, including its rail traction drives activities, to Alstom in return for newly issued shares representing 50% of Alstom’s share capital on a fully diluted basis.

The name of the combined group would be Siemens Alstom. Its global headquarters and the management team for rolling stock would be in the Paris area, and the combined entity would remain listed in France. The headquarters of the Mobility Solutions business would be in Berlin.

The board of the combined group would comprise six directors designated by Siemens, including the chairman, four independent directors and the CEO. To ensure management continuity, Alstom SA Chairman & CEO Henri Poupart-Lafarge will continue as CEO, while Siemens Mobility CEO Jochen Eickholt will ‘assume an important responsibility in the merged entity’.

The companies said the two businesses were ‘largely complementary in terms of activities and geographies’, and the deal would bring together ‘two innovative players of the railway market with unique customer value and operational potential’.

The new entity would have 62 300 employees in more than 60 countries. It would have an order backlog of €61⋅2bn , revenue of €15⋅3bn, an adjusted EBIT of €1⋅2bn and an adjusted EBIT-margin of 8⋅0%. Siemens and Alstom expect to generate annual synergies of €470m in the fourth year afer the close of the deal, and target net-cash at closing between €0⋅5bn and €1⋅0bn.

‘Franco-German merger of equals’

‘This Franco-German merger of equals sends a strong signal in many ways’ said Joe Kaeser, President & CEO of Siemens AG. ‘We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term. This will give our customers around the world a more innovative and more competitive portfolio’.

He said ‘the global market place has changed significantly over the last few years’. The emergency of China’s CRRC as ‘a dominant player in Asia’ has ‘changed global market dynamics’, while digitalisation also has an impact . ‘Together, we can offer more choices and will be driving this transformation for our customers, employees and shareholders in a responsible and sustainable way’, Kaeser said.

Poupart-Lafarge said the agreement was ‘a key moment in Alstom’s history, confirming its position as the platform for the rail sector consolidation.’ The combined business would have a global reach across all continents, scale, technological know-how and a ‘unique positioning on digital transportation’, he said. ‘By combining Siemens Mobility’s experienced teams, complementary geographies and innovative expertise with ours, the new entity will create value for customers, employees and shareholders’.

Shareholders
Alstom shareholders at the close of the day preceding the closing date would receive two special dividends: a control premium of €4⋅00 per share (totalling €0⋅9bn) to be paid shortly after closing of the transaction and an extraordinary dividend of up to €4⋅00 per share (totalling €0⋅9bn) to be paid out of the proceeds of Alstom’s put options for the General Electric joint ventures of approximately €2⋅5bn subject to the cash position of Alstom. Siemens will receive warrants allowing it to acquire Alstom shares representing two percentage points of its share capital that can be exercised earliest four years after closing.

The transaction is unanimously supported by Alstom’s board and Siemens’ supervisory board. Bouygues fully supports the transaction and will vote in favour at at an extraordinary general meeting which is to be held before July 31 2018.

The French state also supports the transaction based on undertakings by Siemens, including a standstill at 50⋅5% of Alstom’s share capital for four years after closing and certain governance and organisational and employment protections. The French state has also confirmed that the loan of Alstom shares from Bouygues will be terminated no later than October 17 2017 and that it will not exercise the options granted by Bouygues. Bouygues has committed to keep its shares until the earlier of the extraordinary general meeting and July 31 2018.

The transaction is subject to clearance from relevant regulatory authorities, including foreign investment clearance in France and anti-trust authorities as well as the confirmation by French capital market authority AMF that no mandatory takeover offer has to be launched by Siemens following completion of the contribution.

If Alstom were not to pursue the transaction, it would have to pay a €140m break-fee.