Alstom, Siemens rail deal runs into French political concerns; shares slip

Shares in Alstom and Siemens slipped on Tuesday, amid concern over political fallout in France from a mooted multibillion-dollar merger of their rail assets, a move that could give Siemens the upper hand.

Alstom shares initially rose but then surrendered those gains, with the stock down 0.1 percent in early session trading and Siemens falling a similar amount. Alstom shares had rallied strongly in earlier sessions on anticipation of a deal.

Siemens is expected to decide on Tuesday to pursue a transaction with Alstom rather than Canada's Bombardier, two sources familiar with the matter told Reuters.

Siemens and Alstom are strong in high-speed intercity trains with their ICE and TGV models. Siemens is also the leader in signalling technology, while Bombardier - whose transportation headquarters are in Berlin - is stronger in commuter and light-rail trains.

Major train and rail technology groups active in Europe have been looking at combining their businesses as larger Chinese state-backed rival CRRC embarks on a global expansion drive.

A Franco-German deal between Siemens and Alstom would also have political ramifications, since the French government has a 20 percent stake in Alstom.

Several politicians and French trade union activists expressed concerns over France losing control of its TGV high-speed train - a symbol of national pride that has highlighted French engineering skill - and possible job losses.

"The problem is that at the end of the day, it would likely be a Siemens company, although we still need clarification on the capital structure," said Prime Partners fund manager Francois Savary, whose firm holds some Siemens shares.

French right-wing politician Nicolas Dupont-Aignan criticised the likely deal on Tuesday as being more favourable for Germany rather than France, as did far-right politician Nicolas Bay, the National Front's secretary general.

"The Franco-German partnership must not result in the eradication of French industry!" Bay said on Twitter.

Eric Woerth, of the right-wing Republicans' party, voiced similar views on his Twitter account.

"Is this now the end of Alstom? Will TGV become German? Why does the government accept such an imbalance?"

A tie-up between the two companies - aimed at creating a European champion in the railway sector similar to Airbus in aviation - would represent a reconciliation of sorts between Siemens and Alstom.

Alstom snubbed the German company in 2014 to sell its energy division to General Electric in a deal that also saw Paris take a 20 percent stake in Alstom, under a temporary agreement with construction group Bouygues.

Siemens Mobility is expected to be merged into Alstom, in which Siemens would hold 50 percent plus one share, while the chief executive would be Alstom's current boss Henri-Poupart Lafarge.

"We suggest that, if they participate, value creation would be limited for Siemens but material for Alstom," said Exane BNP Paribas analysts, upgrading their rating on Alstom to "neutral" from "underweight".