* Both companies reluctant to cede control of train business
* Antitrust issues also threaten to derail deal
* Politicians and unions also an influence
By Georgina Prodhan and Alexander Hübner
FRANKFURT, April 12 Talks about uniting the rail
operations of Germany's Siemens and Canada's
Bombardier are being complicated by the desire of both
companies to keep control of a merged business, two people close
to the matter said on Wednesday.
Antitrust issues and political considerations could also
ultimately make a deal to create a company with combined sales
of $16 billion hard to pull off, industry experts said.
The two groups are talking about a joint venture that could
compete better with Chinese state-backed market leader CRRC
, which is expanding aggressively abroad and would
still be twice their combined size by revenue.
"It could go fast, it could be very drawn-out or it could
fail. It's completely open," one of the people said.
The three main rivals to CRRC -- Bombardier, Siemens and
France's Alstom -- have talked to each other about
combining their businesses in various arrangements over the past
A Bombardier-Siemens combination could run into anti-trust
issues as it did last time it surfaced, with significant overlap
particularly in Germany.
"On a country-by-country basis the deal looks difficult to
pull off in Europe, and that's why it has not happened over the
past 20 years," a person familiar with the industry said.
In a global context the arrival of CRRC has however changed
the shape of the industry and Europe should be interested in
creating a strong competitor to the emerging Chinese challenge,
the person said.
However, antitrust experts doubt that watchdogs will give
the deal a green light without imposing conditions that could
make it unviable.
"Besides Alstom no real competitor would remain in Europe as
long as the Chinese haven't arrived," said Dario Struwe,
antitrust lawyer at law firm FPS.
Any transaction also runs the risk of resistance from trade
One of the sources told Reuters that German unions were
expected to support the deal as long as Siemens was in control.
The two businesses, which span rolling stock to signalling, have
significant overlap in Europe, especially in Germany.
German trade union IG Metall declined to comment on the
But given the Bombardier founding family's influence on the
company - they control the company through a dual class share
structure - it is highly doubtful that Bombardier would agree to
relinquish control to Siemens.
One of the sources also said that the German chancellery was
involved in the situation, without giving details. Another
complication is that Canadian pension fund giant Caisse de depot
et placement du Quebec owns 30 percent of Bombardier's train
A German government spokesman declined to comment.
For Alstom, a deal might not be all bad.
"(Alstom) will have a higher chance of gaining share given
that the other two companies would need to address anti-trust
concerns first and then integrate the two operations which
likely is a cumbersome process, particularly the integration of
the various platforms which could lead to market share losses,"
analysts at JP Morgan said in a note to clients.
SIMILAR IN SIZE
Bombardier has had problems in the past executing on its
contracts, including issues in Canada and Australia. It claims
it has fixed the source of these problems.
Siemens' transportation business used to be notorious for
similar risks -- with product flaws in trams and more recently
repeated delays in supplying high-speed ICE trains to
state-owned German national rail operator Deutsche Bahn.
Since Joe Kaeser took over as chief executive in 2013 the
company has worked to resolve these issues and appears to have
put them behind it for the time being.
The two transportation businesses are roughly comparable in
terms of revenue and profitability.
Bombardier Transportation has set targets of generating
about $8.5 billion in revenues and an EBIT margin of about 7.5
percent in 2017, up from $8 billion and an EBIT margin of under
6.5 percent in 2016.
Siemens Mobility made revenue of 7.82 billion euros ($8.3
billion) and increased its operating profit by 15 percent to 678
million euros last fiscal year, giving it a profit margin of 8.7
percent. Its target profit margin range is 6-9 percent.
"Such a merger would create the clear number-two player in
the rail sector, with a global leading network of clients and
installed equipment and service opportunities," analysts at
brokerage Kepler said.
($1 = 0.9433 euros)
(Additional reporting by Arno Schuetze, Jens Hack and Allison
Lambert; Editing by Keith Weir)