News that construction giant Balfour Beatty, which contains a rail infrastructure business, has been strongly linked with a potential takeover by China Civil Engineering Construction Corporation (CCECC) is in line with a key 2015 trend - consolidation. With media reports stating that the state-owned Chinese firm is in talks with the aim of making an offer for the company, which has struggled in recent years and is in the middle of a group-wide turnaround it is the latest, its further evidence of the trend towards rail takeovers and industry consolidation. With seemingly a new story every week on mergers and acquisitions, SmartRail World Editor Luke Upton today picks out some of the recent major recent developments, as well as one that got away…
June 2015 – Bombardier prepares to spin off its rail-equipment business.
The Montreal-based giant is looking to overcome struggles in its aerospace business and is seeking to spin-off its rail equipment business in a deal that could be worth up to £3.5 billion. The rail unit is actually the healthier part of the company but senior management see aerospace as where they’d like to continue. A new Vice-President, Louis G. Véronneau has been named to oversee the company’s mergers and acquisitions activity. Siemens and CSSR have been linked with the transportation unit. See also - Bombardier forms joint venture to tackle Chinese signalling market.
June 2015 – Merged China North Railway (CNR) and China South Railway (CSR) make debut on stock market.
Shares surged as shares for the new conglomerate formed by the merger of China CNR and CSR Corp. debuted strongly on the stock market. The two giants merged earlier in the year to create the world’s largest rail vehicle supplier - CRRC Corp. - which will focus on improved efficiencies and distribution along with a focus on overseas growth – a more potent option now they aren’t competing with each other. CRRC will benefit from generous economies of scale, plus support from the Chinese government and will dwarf the likes of Siemens and Alstom with whom it competes for emerging markets in Africa, Asia and South America.
May 2015 – Alstom acquires the Balfour Beatty State in Signalling Solutions Ltd.
Alstom buys Balfour Beatty’s 50% stake in their Signalling Solutions Ltd join venture giving them sole ownership. Established in 2007, it has become one of the major UK signalling suppliers employing 540 staff across the UK.
‘This acquisition is part of Alstom’s signalling growth strategy and enables the company to take full benefit from its worldwide resources and capabilities’, said Pascal Cléré, Senior Vice-President of Alstom Transport’s signalling business. ‘SSL enriches Alstom’s portfolio, both from a geographical and product standpoint.’
May 2015 - EU clears SNCF for Eurostar takeover.
The European Union gave permission to SNCF to take sole control of Channel Tunnel operator Eurostar, buying their last non-owned stake from the British government. The clearance was granted on the condition it doesn’t try to block competitors and SNCF will now be required to allow rivals to introduce new services on the line. Eurostar International was established in 2010, jointly owned by SNCF, SNCB and the UK government but is now an entirely SNCF owned operation.
February 2015 - Hitachi swoops for $2.2 billion Finmeccanica rail business.
The Italian aerospace and defence giant Finmeccanica sold its rail business, which includes Ansaldo STS and AnsaldoBreda to Hitachi Ltd in a deal that will cost the Japanese conglomerate 1.9 billion Euros ($2.2 billion). The Japanese group has already moved its global rail division to London and represents a further step in its ambition to become an international leader in total rail solutions and compete further with Canada’s Bombardier, Germany’s Siemens and France’s Alstom as well as the emerging strength of Chinese rail companies.
Under Review: Alstom and GE acquisitions and partnerships.
Currently being reviewed by the European Commission's (EC) competition directorate is the plan for Alstom to accept a deal from GE to sell its energy activities and focus on transport by acquiring GE’s signalling business and engaging in great collaboration with GE within rail. In what is quite an unusual proposal – GE acquires Alstom’s Power and Grids businesses for a fixed price of €12·35bn. Alstom would use these proceeds to invest in its transport busienss, pay down debt, return cash to shareholders and invest €2·6bn in three 50:50 joint ventures with GE in the energy sector. And then to strengthen its wholly-owned Transport business, Alstom would pay around €600m to acquire 100% of GE’s signalling business. An interesting plan but one currently undergoing significant scrutiny.
And one that got away… CP Rail sets sights on new targets after CSX merger talks fail.
In October 2014, “exploratory conversations” broke down between Canadian Pacific Railway and CSX. Although CP Chief Executive Hunter Harrison has spoken before about the virtues of mergers and a move to build a transcontinental network may again be revisited in the near-future.
Editor's Comment on rail industry consolidation: This article is just a brief snapshot of what is happening now and excludes the entry of non-traditional players into the industry and the rapidly evolving IT solutions that are circumventing established processes and suppliers. With the pace of change quickening, and the power of Chinese companies outside of their borders growing 2015 is likely to see further shocks to the established rail industry. Just to give one example of China’s power – last year CNR won their first contract in America – for subway trains in Boston – with a proposal that was nearly half the price of Bombardier’s bid. This is the level of competition that the big suppliers now have to manage. Standing still is no longer an option.