On September 26, Siemens and Alstom have signed a Memorandum of Understanding to combine Siemens’ mobility business including its rail traction drives business with Alstom. Siemens will receive newly issued shares in the combined company representing 50 percent of Alstom’s share capital on a fully diluted basis.
The corporate name of the combined group will be Siemens Alstom and it will be led by Alstom CEO with 50 percent shares of the new entity owned by Siemens. Closing is expected at the end of 2018.
“This Franco-German merger of equals sends a strong signal in many ways. 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. The global market-place has changed significantly over the last few years. A dominant player in Asia has changed global market dynamics and digitalization will impact the future of mobility. Together, we can offer more choices and will be driving this transformation for our customers, employees and shareholders in a responsible and sustainable way”, said Joe Kaeser, CEO of Siemens AG.
The new entity will benefit from an order backlog of EUR 61.2 billion, revenue of EUR 15.3 billion, an adjusted EBIT of EUR 1.2 billion and an adjusted EBIT-margin of 8 percent, based on information extracted from the last annual financial statements of Alstom and Siemens. In a combined setup, Siemens and Alstom expect to generate annual synergies of EUR 470 million latest in year four post-closing and targets net-cash at closing between EUR 500 million to EUR 1 billion.
Global headquarters as well as the management team for rolling stock will be located in Paris area and the combined entity will remain listed in France. Headquarters for the Mobility Solutions business will be located in Berlin. In total, the new entity will have 62,300 employees in over 60 countries.
“Thanks to its global reach across all continents, its scale, its technological know-how and its unique positioning on digital transportation, the combination of Alstom and Siemens Mobility will bring to its customers and ultimately to all citizens smarter and more efficient systems to meet mobility challenges of cities and countries. 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. I am particularly proud to lead the creation of such a group which will undoubtedly shape the future of mobility,” said Henri Poupart-Lafarge, Chief Executive Officer of Alstom SA.
The Board of Directors of the combined group will consist of 11 members and will be comprised of 6 directors designated by Siemens, one of which being the Chairman, 4 independent directors and the CEO. In order to ensure management continuity, Henri Poupart-Lafarge, will continue to lead the company as CEO and will be a board member. Jochen Eickholt, CEO of Siemens Mobility, shall assume an important responsibility in the merged entity.
In France, Alstom and Siemens will initiate Works Councils’ information and consultation procedure according to French law prior to the signing of the transaction documents. If Alstom were not to pursue the transaction, it would have to pay a EUR 140 million break-fee. The transaction will take the form of a contribution in kind of the Siemens Mobility business including its rail traction drives business to Alstom for newly issued shares of Alstom and will be subject to Alstom’s shareholders’ approval, including for purposes of cancelling the double voting rights, anticipated to be held in the second quarter of 2018. The transaction is also subject to clearance from relevant regulatory authorities, including foreign investment clearance in France and anti-trust authorities as well as the confirmation by the French capital market authority (AMF) that no mandatory takeover offer has to be launched by Siemens following completion of the contribution.
As part of the combination, Alstom existing shareholders at the close of the day preceding the closing date, will receive two special dividends: a control premium of EUR 4.00 per share (in total = EUR 900 million) to be paid shortly after closing of the transaction and an extraordinary dividend of up to EUR 4.00 per share (in total = EUR 900 million) to be paid out of the proceeds of Alstom’s put options for the General Electric joint ventures of approximately EUR 2.5 billion 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 envisaged transaction is unanimously supported by Alstom’s board and Siemens’s supervisory board. Bouygues fully supports the transaction and will vote in favor of the transaction at the Alstom’s board of directors and at the extraordinary general meeting deciding on the transaction to be held before July 31, 2018, in line with Alstom board of director decision. The French State also supports the transaction based on undertakings by Siemens, including a standstill at 50.5 percent of Alstom’s share capital for four years after closing and certain governance and organizational and employment protections. The French State confirms that the loan of Alstom shares from Bouygues SA will be terminated in accordance with its terms 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 deciding on the transaction and July 31, 2018.
The businesses of the two companies are largely complementary. The combined entity will offer a significantly increased range of diversified product and solution offerings to meet multi-facetted, customer-specific needs, from cost-efficient mass-market platforms to high-end technologies. The global footprint enables the merged company to access growth markets in Middle East and Africa, India, and Middle and South America where Alstom is present, and China, United States and Russia where Siemens is present. Customers will significantly benefit from a well-balanced larger geographic footprint, a comprehensive portfolio offering and significant investment into digital services. The combination of know-how and innovation power of both companies will drive crucial innovations, cost efficiency and faster response, which will allow the combined entity to better address customer needs.
Siemens-Alstom merger is the best fit
During Siemens and Alstom joint press conference, the representatives of both companies, Joe Kaeser, CEO of Siemens AG, and Henri Poupart-Lafarge, CEO of Alstom, concluded that the transaction is a perfect match and the new joint venture will tackle the mobility challenges at global level. The companies estimate that by the end of 2018 the transaction will be closed and the new company, named Siemens Alstom, will start its activities. Under the deal, Siemens will own 50 percent plus a few shares within the new company, while Alstom’s CEO, Henri Poupart-Lafarge will lead the joint venture.
“We are going to bring together our mobility businesses of both companies and we are going to bring it to the next level, together. This is a merger of equals in a spirit of a strong partnership. Siemens will receive some 50 – 50 plus percent of the new company. By the end of 2018, we expect the closing of the transaction and we will start our mobility business at European, as well as global level. We are showing the world that we are determined to shape the future, for mobility, for customers and for Europe. We have been carefully analyzed what would be the best fit. The best fit for customers, the best fit for Europe, the best fit for our employees, and also for our shareholders in a long term. The outcome of the analysis has clearly been Alstom. Alstom is the best fit. And, at this time, the timing is right,” Joe Kaeser, CEO of Siemens AG, said.
Also, for Alstom, the deal is the best merger the company could have made, creating a new global leader in the railway industry. “For Alstom, this is the best merger that we could ever thought about. When we came to this opportunity to create this new global leader, and when we did the internal review and we were looking internally what was the best fit for Alstom, Siemens was the first,” Henri Poupart-Lafarge, CEO of Alstom said.
According to Lafarge, “this was not a “do-or-die” type of merger, no emergency to do anything because Alstom in itself was enjoying a great dynamism, a great momentum in a growing market. We are not in a market that is shrinking.”
Lafarge explained that the two trends of the market – globalization and digitalization, create new opportunities, but also new competitors such as the Chinese, Japanese, Koreans. Also, these trends bring a lot of complementarities between the two companies that together can tackle the mobility challenges. “So, these are the two busy trends on our market and this explains why the match between Siemens and Alstom is a perfect one. So, we are combining two growing companies creating new opportunities for customers and employees,” Lafarge said.
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