Last week, the EU suggested that they would block the proposed merger between railway giants Alstom and Siemens, signalling a stark reminder of how outdated some of the EU’s laws are. It’s perhaps one of the reasons Britain is looking to leave the bloc. However, with all the talk of Brexit, it’s easy to miss some of the other preoccupations the EU is currently facing, with this proposed merger being one of them.
The two companies, Alstom of France and Siemens of Germany, have been negotiating the logistics of a merger for a while now, knowing that the EU Competition Policy would likely come into play. As far back as last December 2018, the two sides entered talks with EU correspondents to try to get their proposal approved. Both offered to sell some of their older technologies and trains to their rivals in a bid to get their request approved by Margrethe Vestager, the European Commissioner for Competition. However, this was to no avail. Last week, Ms. Vestager hinted she would recommend that the deal is blocked, causing the management of both firms to heavily criticise her and the EU as a whole. Their argument was that the merger was necessary if Europe wanted to continue fighting back the Chinese train behemoth CRRC or the Canadian company Bombardier, which are increasingly looking as if they are trying to penetrate the European market.
Do these MNCs have a legitimate argument over the outdated nature of the EU’s Competition Policy, or are they simply leveraging their muscle to try to solidify their presence in the market and create a monopoly that would guarantee them future success? Let’s examine the policy a bit more closely.
There are two main principles in question for most merger and acquisition scenarios. Primarily, the companies in question must exceed worldwide sales of €5 billion; in 2017/2018 Alstom reported €7.2 billion, whilst Siemens reported €9.3 billion. Safe to say these two companies surpass that requirement and don’t show any signs of slowing growth. Secondly, the EU forbids cartels, which are defined as ‘a group of similar, independent companies which join together to fix prices, to limit production or to share markets or customers between them’. In this regard, it would seem as if the EU is in the right. So what then, are these corporations arguing about?
Perhaps the fact that the legislation dealing with mergers dates from 2004, a time where the threat of foreign competitors was arguably less than it is today, irritates the companies who have evolved and adapted to market trends faster than the EU have managed. Perhaps Ms. Vestager’s comments that the merger is not necessary because China shows no signs of penetrating the European railway industry has angered them, especially with the development of China’s new trade route, the Belt and Road Initiative, where the state-owned CRRC will probably be the main operator. Lastly, perhaps the fact that both Finance Ministers from France and Germany, Bruno Le Maire and Olaf Scholz respectively, have approved and actively support the merger is what infuriates Alstom and Siemens the most. At the time of writing the merger is looking increasingly unlikely. We’ll have to wait until the 18th of February to see if the EU catches up to the 21st century or if remains stubborn on its outdated principles.
By Alex Lohier – Business Editor