LONDON (Reuters) - Alstom shares rallied on Wednesday after Brussels rejected the French rail manufacturer's plan to merge with Siemens' rail division to create a powerful European rail business.
The European Commission blocked the deal due to concerns about the merged companies' large share of the European railway market even after they had offered concessions.
The decision was widely expected, and investors were relieved that the decision removed some uncertainty about the deal, which has been in the works since September 2017 and has been a big distraction for the company and investors.
Berenberg Bank said the failed deal could now put a deal with Alstom's Canadian rival Bombardier in play.
At 1358 GMT, the stock in Paris was up 4 percent after hitting its highest since Dec. 18, while Siemens shares in Frankfurt were down 0.7 percent.
Following the news, Berenberg analysts upgraded Alstom to a 'buy' rating and set a new price target of 42 euros ($47.9), noting that Alstom may now seek an alternative deal with Bombardier's transportation division.
"In our view, the market has been solely focused on the potential merger with Siemens Mobility (....) and is mispricing the fact that Alstom's earnings could double by 2025," said Berenberg analysts in a note.
A tie-up with Bombardier's transportation business - its largest unit by revenue - could be an "interesting alternative that Alstom should explore", the bank said, estimating it could boost Alstom's share price to 45 euro.
It would likely have a higher chance of anti-trust approval than the Siemens deal because of the lower European market share in high-speed rail and signalling, which was a major obstacle with Brussels, it said.
Otherwise, analysts were also positive on Alstom's prospects going it alone.
Berenberg expects organic sales to grow at twice the pace of the sector, supported by improving profitability and cash flow.
Analysts were also eyeing the potential for Alstom to return some cash to shareholders. It has about 2.5 billion euros ($2.85 billion) from its deal to exit its energy business last year.
"A quick decision on cash return would be well received," said Citi analysts.
($1 = 0.8783 euros)
(Reporting by Josephine Mason, Thyagaraju Adinarayan, Helen Reid and Julien Ponthus, Editing by Helen Reid)
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