Frankfurt/Paris/Munich: Siemens AG and Alstom SA are nearing an agreement on a framework to combine their rail units, as the German and French engineering companies’ boards prepare to meet to sign off on a deal that would create a European transportation giant, according to people familiar with the negotiations.

Siemens, based in Munich, is likely to own slightly more than half of the combined entity, said the people, who asked not to be identified ahead of a potential announcement as early as Tuesday after the separate board meetings. The new business will be based and listed in France and will be run by a French chief executive officer, the people said. The French government, which owns a stake of about 19.9% in Alstom, has backed the accord, one of the people said.

Siemens and Alstom, which confirmed last week that they are engaged in preliminary talks to combine their mobility subsidiaries, have declined to comment. Siemens shares fell 0.5% to €116.05 at 9:07am in Frankfurt, while Alstom rose 1% to €33.75 in Paris.

Combining the two assets would give Siemens and Alstom more heft to confront growing competition from China. In creating the world’s second-largest maker of rail cars and locomotives after China’s CRRC Corp., a European tie-up would also scuttle months of talks between Siemens and Bombardier Inc. and represents a new hurdle for the Canadian company’s turnaround plans.

‘Win-win’

“It is not that often that we see an M&A scenario that we like, and one that really is a ‘win-win’ – but there is scope for that to be the case here," Ben Uglow, an analyst at Morgan Stanley, wrote in a note. The combination would be attractive especially for Alstom shareholders, while Siemens would benefit mainly from the new entity’s ability to better compete with CRRC, he said.

Siemens’s mobility unit includes signalling equipment as well as trams, regional trains and long-distance high-speed trains. Alstom has pared back its operations in recent years after selling its power-generation business to General Electric Co. At the time of negotiations with GE, Siemens had also been interested in a sweeping combination with Alstom, but was rejected by the French company and its owners, which also include conglomerate Bouygues SA.

The enlarged entity is likely to be named Siemens-Alstom, two of the people said.Bloomberg

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