The European Commission has blocked the merger of Siemens and Alstom.
London CNN Business  — 

The European Union has blocked a merger by Siemens and Alstom that would have created the train equivalent of aviation powerhouse Airbus.

EU antitrust regulators said Wednesday that combining the train manufacturing business of the German and French companies would have harmed competition and lead to higher prices in Europe.

Margrethe Vestager, the bloc’s top competition official, told reporters that the companies were not willing to address “serious competition concerns.”

“This merger would have resulted in higher prices for the signaling systems that keep passengers safe and for the next generations of very high-speed trains,” Vestager said.

Siemens (SIEGY) and Alstom (ALSMY) had argued that joining forces was necessary to achieve the scale needed to compete with companies from China. A similar structure helps Airbus (EADSF) compete with US rival Boeing (BA).

Siemens CEO Joe Kaeser said the decision showed that Europe “urgently needs structural reform in the way it shapes its industrial future.”

“Protecting customer interests locally must not mean that Europe cannot be on a level playing field with leading nations like China, the United States and others,” he said.

Alstom said in a statement that it regretted the decision. The companies indicated they would not appeal the decision in court.

A European champion

The proposed deal to combine France’s Alstom and the transportation unit of Germany’s Siemens was announced in September 2017.

The plan quickly received the backing of the French and German governments, which were eager to create a new European “champion” with the financial firepower needed to compete around the world.

One key rival is China Railway Rolling Stock Corporation (CRRC), the world’s largest supplier of rail equipment, which has won major contracts to supply metro cars in Boston, Chicago and Melbourne.

Its scale is massive: Siemens and Alstom have combined annual sales of over €15 billion ($18 billion), just more than half of the 207 billion yuan ($31 billion) in revenue that CRRC reported in 2017.

EU regulators were not swayed by the argument that Siemens and Alstom needed more scale to compete with the state-backed Chinese company, which was itself formed by a merger of two railcar makers in 2015.

Instead, they focused on the effect of the proposed merger in Europe.

“This is not an industrial policy where the law is guided by the prospect of European companies winning tenders elsewhere,” said Pablo Ibáñez Colomo, a law professor at the London School of Economics. “The whole point is to preserve competition in Europe.”

Bruno Le Maire, the French economy minister, said Wednesday that blocking the merger was “a bad choice for Europe.”

Le Maire said he would work with his German counterpart, Peter Altmaier, to propose reforms that would adapt European competition law “to the economic reality of the 21st Century.”

The proposal to combine Siemens and Alstom drew comparisons to Airbus, which traces its roots to the consolidation of several European aircraft manufacturers in the 1970s. It competed directly with US rivals at the time.

Opponents argue that CRRC does not yet present a significant threat in Europe, where it has not yet won a contract.

“When Airbus was created it was very different situation,” Vestager said Wednesday. “Creating Airbus was actually increasing competition.”

Chris Liakos and Martin Goillandeau contributed reporting.