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Brussels Vetoes the Merger between Alstom and Siemens

Brussels Vetoes  the Merger between Alstom and Siemens

There will be no European rail giant. On Wednesday, February 6, the European Commission banned the proposed merger between the French Alstom and the German Siemens Mobility. At a press conference, European Competition Commissioner Margrethe Vestager justified this decision on the grounds that this new group would harm fair competition in Europe.

Our investigation showed that the merger would significantly reduce competition in several signalling markets and for very high-speed trains. The merged company would have become, by far, the largest player in Europe and in some signalling markets there would be no competition left.

Chinese Competition Considered Unreliable

For the Commission, the new European player would have had very strong positions in two sectors: rolling stock (for main lines and urban lines) and signalling solutions, equivalent to 3 times the market share of its nearest competitor. In short, the Commission considered that the new package would have penalized other European rail companies, innovation, the entry of new products and, ultimately, consumers.

And competition from the world’s number one, the Chinese CRRC, put forward by both parties to justify the merger, was considered “highly unlikely” and “not very credible”. For the Commission, Alstom and Siemens are strong and robust enough to face Chinese manufacturers.

For Renaud Christol, a competition lawyer with August Debouzy, this decision is technically well founded.

According to him,

A credible potential competitor is a competitor who has already responded to calls for tenders in a geographical area where he was not present, and who without having won them has therefore demonstrated his willingness to enter the market. For the moment, the Chinese are very big, but they are not leaving their domestic market (China, Japan, Korea). As a result, the Commission considered that this was not sufficient to pose a competitive threat to the new entity. Competition law in concentrations is prospective but not divinatory. We need credible evidence.

An operator with very high market shares in a market with high entry barriers, a very distant number 2 and an absence of potential competition: that’s all it took to bury the project.

But for Jean-François Dufour, director at DCA/China Analysis and specialist in China, this decision is based on “a big analytical error”.

The EU’s competitive rules with calls for tenders mean that there is no immediate threat, for 5 years for example. But in the long term, in 10 years for example, this is far from certain. The EU is increasingly being challenged, so it is not certain that European states will comply with European rules in the future. And China has already shown that it is focusing on a number of countries, such as Hungary, that are challenging the EU.

China has indeed launched a very concrete rail link project between Budapest and Belgrade.

For the moment it’s a line but on arrival there’s a good chance the package will include Chinese rolling stock.

The failure of this merger could therefore leave the Chinese giant free to operate on European soil but also on third markets.

Europe is the main market for Alstom and Siemens, but it is not the only one. These groups need to sell in other markets such as Russia, Indonesia, Southeast Asia. It is clear that CRRC has a significant advantage in these markets that a European champion could have offset.

Should European Rules be Changed?

Mergers are rarely prohibited by the European Commission. Only about thirty projects are retooled each year, compared to several thousand approved. Reactions have therefore been particularly strong and voices are already being raised in France and Germany to review the EU’s competition rules. This is what the French Minister of Economy Bruno Le Maire called for in a tweet:

Alstom-Siemens: We must now look to the future and rethink the rules of European competition. Together with my German counterpart @peteraltmaier, we will make proposals to recast these rules and have a more ambitious European industrial policy.

For Jean-François Dufour, one thing is certain, Chinese companies do not play by the same rules as European companies. And Europe will have to adapt.

From the point of view of Chinese competition, it would be absolutely necessary to change the rules because they endanger our companies. We have abandoned a state strategy in the rail sector, as we had done for Airbus. We are faced with companies that are themselves, coordinated by the State, and that in fact jeopardize our companies.

For Renaud Christol, changing European rules is not desirable.

We would no longer be in competition law but in protectionism. The basic principle of the competition rules on which the EU is based is that monopoly is harmful to the market.

Christol also recalls the very strong positions of the European Commission on new technologies.

On the one hand, we cannot be pleased to have a Commission that regularly attacks Google for practices that are objectively harmful to the market and, on the other hand, accuse it of being retrograde in another market.