* Talks pretty far advanced - source
* Drive to consolidate given urgency by China's ambitions
* Siemens shares rise to record high of 129.80 euros
(Adds analyst and Quebec government comments)
By Alexander Hübner and Andrea Shalal
FRANKFURT/BERLIN, April 11 Germany's Siemens
and Canada's Bombardier are in talks to
combine their rail operations, two people close to the matter
told Reuters on Tuesday, an action that could strengthen their
hand against Chinese state-backed market leader CRRC Corp
The joint venture would create a company whose combined
sales of $16 billion would be half those of CRRC,
the result of a 2015 merger of China's top two players, and
would leave France's Alstom out of the industry's
Rail consolidation has been a trend over the last few years,
as global companies seek to contain costs and Western companies
struggle with the rising ambitions of China at home and abroad.
The top three runners-up - Bombardier, Siemens and Alstom -
have talked to each other about combining their businesses in
various arrangements over the past years. This would be the
third attempt by Siemens and Bombardier, one of the people said.
"Talks are occurring and are already pretty far advanced,"
said one of the sources, who asked not to be named because the
negotiations are confidential.
Siemens and Bombardier, also a maker of aircraft, declined
to comment, as did Canada's second-largest pension fund, Caisse
de depot et placement du Quebec, which owns 30 percent of
Bombardier's train business.
The news, earlier reported by Bloomberg, lifted Siemens
shares to a record 129.80 euros. The stock later slipped back.
Bombardier shares rose 6.7 percent to 2.37 Canadian dollars.
Despite positive market reaction, analysts said antitrust
concerns in Europe remain the biggest threat to a deal. The
combination also faces potential opposition from unions in the
run-up to Germany's fall elections.
One Canadian transportation analyst, who declined to be
identified because he was not authorised to speak to the media,
said Bombardier is unlikely to sell the stake outright to
Siemens because the company's founding family would want to keep
control of the division within the company. The family holds
control of Bombardier through its dual-class share structure.
It is not yet clear which of Siemens or Bombardier would
eventually consolidate the entity in the event of an agreement,
one of the sources said.
That person said the last time the two attempted to merge,
the deal fell apart because of opposition from European
That could be a problem this time, since the joint venture
would further consolidate an industry that has already dwindled
to a handful of companies.
ALSTOM THE LOSER
That would leave Alstom with few options, said a
London-based analyst who asked not to be named because he is not
authorised to speak to the press.
"If Siemens were to merge potentially with Bombardier, then
obviously Alstom would be the loser in the scenario," he said.
"Alstom needs to consolidate the market ... but there are not so
many targets out there."
Union representatives in Canada and Germany said they were
not yet aware of any rail merger talks.
Siemens' and Bombardier's transport businesses are roughly
comparable in size. With a combined 2016 operating profit of
$1.28 billion, the joint venture could be valued anywhere
between $14 billion and $27 billion, based on multiples of
Germany's Siemens, which has shed units from hearing aids to
home appliances to focus on core activities such as factory
automation, has turned its transportation division around after
years of poor project management in rolling stock.
It still faces challenges, though, with drops in Chinese and
rail infrastructure revenue last year. Its strengths are in
signalling and railway technology.
Bombardier, which has about $9 billion in net debt, has been
open to monetizing its rail business for some time. The unit has
faced high costs because of technical challenges on a series of
programmes and had a 10 percent slump in revenue last year.
Quebec, which agreed to invest $1 billion in Bombardier's
CSeries jet program, declined to comment, a spokesman for the
province's premier, Philippe Couillard, said on Tuesday.
"It's such a capital-intensive business, and if you're able
to partner with a company on that scale and that has a more
global focus that would make a lot of sense," said Bryden Teich,
portfolio manager at Toronto-based Avenue Investment Management,
which does not hold the stock.
($1 = 0.9416 euros)
($1 = 6.8893 Chinese yuan)
(Additional reporting by Jens Hack in Munich, Allison Lampert
in Montreal, Dan Burns in New York, Matt Scuffham in London,
Cyril Altmeyer in Paris, Denny Thomas and Alastair Sharp in
Toronto and Arno Schuetze in Frankfurt; Writing by Arno Schuetze
and Georgina Prodhan; Editing by Mark Potter and David Evans)