Alstom, the maker of France's TGV trains, and German industrial giant Siemens said they are to merge their rail activities in a politically tricky deal to create "a new European champion" big enough to take on world leader CRRC of China.
Siemens will control Siemens Alstom, with 50 percent of the combination plus a few symbolic shares.
The French government acquired its option on the Bouygues stake as part of a deal that helped Alstom reject Siemens as a buyer for the power business in favour of GE.
Siemens and Alstom have signed a Memorandum of Understanding to combine Siemens' mobility business including its rail traction drives business with Alstom.
Under the deal, Siemens will have a small majority of the Paris-based and listed combination, which promises eventual annual cost savings of 470 million euros ($552 million) a year, while Alstom boss Henri Poupart-Lafarge will become its CEO.
Siemens brings in 7.8 billion euros ($9.3 billion) of revenue annually from rail, while Alstom boasts sales of 7.3 billion euros.
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Siemens president Joe Kaeser added: "This Franco-German merger of equals sends a strong signal in many ways".
The ill-tempered contest between Alstom and Siemens has been a feature of the sector for decades and reached a boiling point in 2011, when the pair engaged in a public spat over the safety of competing high-speed models they were pitching to Channel Tunnel express operator Eurostar International Ltd. The business headquarters for Mobility Solutions will be in Berlin, Germany, and the business headquarters for Rolling Stock will also be in France.
European railway manufacturers Siemens Mobility and Alstom announced a merger Tuesday that leaves Montreal-based Bombardier Transportation facing a new "European champion" and a substantially larger rival. Already there are anxieties that the formation of the new company could result in job cuts or the loss of French control of its iconic TGV brand, which relies heavily on Alstom technology.
The new European company with 62,300 employees in more than 60 countries will have an order backlog of US$72 billion and an adjusted margin of eight per cent.
Alstom and Siemens held board meetings today, which are expected to approve the tie-up. The new company is meant to be a "European champion", competing more effectively with the Chinese state-owned rolling stock builder CRRC.