Deal gives Europe a "champion" to battle China in trains

FRANKFURT, Germany - German industrial equipment maker Siemens said Tuesday it has signed a memorandum of understanding to merge its train-building business with French rival Alstom, creating a "new European champion" in the face of growing competition from China.

The deal is a sign of renewed French-German cooperation just days after Chancellor Angela Merkel won a fourth term in office.

Siemens said Tuesday it would have 50 percent of the shares in the combined entity, with the chance to buy 2 percent more.

The deal skirted political sensitivities on the French side. The new group's headquarters will be in the Paris area, and Alstom CEO Henri Poupart-Lafarge will lead the entity, which will be called Siemens Alstom.

The deal is seen as an effort by the European companies to head off tougher competition from massive Chinese railmaker CRRC Corp., which is competing for global infrastructure deals and has annual sales of about $36 billion (over 30 billion euros).

The Alstom-Siemens comes on the same day that French President Emmanuel Macron called for deeper European Union integration through a joint budget, shared military force and harmonized taxes.

"This Franco-German merger of equals sends a strong signal in many ways," Siemens CEO Joe Kaeser said in a statement.

"We put the European idea to work and together with our friends at Alstom, we are creating a new European champion in the rail industry for the long term."

Siemens' news release said the Alstom board supported the transaction and that the French government added its support in return for employment protections and an agreement to hold the Siemens stake to 50.5 percent for four years.

The announcement comes just weeks after the French government put on hold another heavy industry deal. In August, it had frozen the promised sale of a majority stake in the Saint-Nazaire shipyard to Italy's state-controlled Fincantieri. The French government said it wanted to protect jobs and proposed limiting Italy's stake to 50 percent.

But the move angered Italy and raised questions about Macron's professed willingness to increase industrial cooperation in Europe.

The two countries later said they would try to find a solution, with a decision potentially to be announced when Macron meets his Italian counterpart, Paolo Gentiloni, on Wednesday.