BBD.B Bombardier Inc

By Ben Dummett and Jacquie McNish 

Siemens AG and Bombardier Inc. are in advanced to talks to combine their train-making businesses, according to people familiar with the matter, as they aim to fend off stiffer competition from consolidating rivals in China.

Germany's Siemens, one of the world's biggest industrial conglomerates, and Canada's Bombardier, which is also a major plane maker, are in advance discussions to fold their train operations into two separate joint ventures. One unit, controlled by Siemens, would hold the signaling operations of the two companies. The second, which Bombardier would majority own, would oversee the rolling-stock operations. Signaling equipment is used to keep trains clear of each other and rolling stock centers on train manufacturing.

A spokesman for Siemens declined to comment.

The combined joint ventures would have about EUR15 billion of annual sales based on 2016 results of both firms' train divisions, according to one person familiar with the discussions.

Talks are expected to conclude as early as next month, one of the people said. The discussions were previously reported by Bloomberg.

The companies expect to reach a deal in the next couple of weeks, but one person familiar with the negotiations said there are still some key issues that need to be resolved. As in all complex merger negotiations, talks could collapse without an agreement.

The talks come at a time when the 2015 merger of Chinese train makers CSR Corp. and China CNR is forcing rivals to gain scale as a means to cut costs and access additional customers to boost revenue and profit. In 2016, Bombardier 's transportation business reported revenue of $7.57 billion, down almost 9% from the year-ago period. Earnings before interest and taxes, a profit measure, was also lower year over year. Siemens' train business has fared better, as revenue and profit for the fiscal year ended Sept. 30, 2016, grew. Still, orders fell 23% year over year.

Siemens is the leading supplier of train-signaling equipment, accounting for about 25% of the global market, compared with Bombardier's estimated 10% share, according to a report this week by National Bank of Canada. The report said overlap between the two companies' rolling-stock businesses could "present some challenges" with competition authorities. The train-manufacturing arms of Bombardier and Siemens both are currently based in Germany where the two rank as the country's largest suppliers.

Bombardier had signaled as far back as 2015 that it was considering a possible joint venture as part of potential participation in the consolidation of the sector. At the same time, the company has always stressed that it wouldn't sell the train business outright. Bombardier has long maintained that the train division is attractive as it counterbalances the aerospace division. It tends to perform better during economic downturns, when governments increase spending on rail and other infrastructure projects, and demand for aircraft falters. The opposite is often true during times of economic expansion.

--Christopher Alessi contributed to this article.

Write to Ben Dummett at ben.dummett@wsj.com and Jacquie McNish at Jacquie.McNish@wsj.com

(END) Dow Jones Newswires

July 21, 2017 15:51 ET (19:51 GMT)

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