Will the Next Alstom-Siemens Be So Easy to Reject?

(Bloomberg Opinion) -- True to form, Europe’s top antitrust official has stood firm. Competition Commissioner Margrethe Vestager has rejected Siemens AG and Alstom SA’s plan to merge their rail businesses despite intense lobbying and bullying from Paris and Berlin. The trustbuster argued, rightly, that the deal would have harmed competition in the transport market and the companies failed to offer sufficient concessions to make up for it.

But this isn’t the end of the story. With Vestager’s term in office expiring later this year, and the U.K. set to leave the European Union, a push by France and Germany to rewrite the bloc’s competition rules in their image is only just beginning. And that could make life more complex for bankers, lawyers and executives trying to prepare their next bid proposal.

The EU’s predictable rejection of the Alstom-Siemens merger was a technocratic, rules-based decision. Essentially, Vestager and her team did their job according to competition law. The Commission’s decision explains that bringing together the two largest suppliers of various types of signaling systems and rail cars in Europe would have likely resulted in higher prices, less choice and less innovation for rail operators.

Paris and Berlin argued that the big competitive threat now comes from Chinese powerhouse CRRC Corp., whose annual revenue of roughly 18 billion euros ($21 billion) is bigger than that of Alstom and Siemens combined. But the Commission said this hadn’t yet materialized in Europe. Why make consumers pay the cost of an Alstom-Siemens tie-up today for a threat in the future?

The backlash from France and Germany, though, suggests the two governments are intensely keen to pitch to voters their own industrial policy objectives — protecting jobs, the economy, and national champions — rather than liberal, free-market values that encourage price competition. The politicians reckon that voters will be sympathetic to what is a more protectionist stance.

French Finance Minister Bruno Le Maire accused Brussels of being blind to the tectonic shifts happening in global trade, saying the rejection would “serve the economic and industrial interests of China.” German Economy Minister Peter Altmaier had said he has a “keen interest” in the deal being approved.

Given the companies only offered paltry asset sales to assuage the antitrust watchdog, the battle lines were always going to be political. Siemens CEO Joe Kaeser’s reaction confirmed as much. He argued that the rejection “proves that Europe urgently needs structural reform.”

Should this campaign by the euro zone’s two biggest economies gather steam, expect all sorts of new doubts to emerge over the solidity and certainty of the EU’s approach to competition law — which has been influenced in no small part by Britain.

While it’s fair to note that Vestager and her predecessors have, by and large, been resistant to political influence and pressure campaigns, a reopening of treaties or competition law without a significant pro-market voice at the table will likely bring big changes.

Alec Burnside, partner at law firm Dechert LLP, argued as far back as 2013 that the Sarkozy tendency — a reference to former French President Nicolas Sarkozy’s opposition to the principle of free and undistorted competition — would win out after Britain left the EU.

It’s far too soon to assume that France and Germany have the bandwidth and political capital to win over other member states to an overhaul of the bloc’s competition rules. But this year’s election to the European Parliament and a new Commission may encourage them to keep up the pressure. And if legal uncertainties or politicization do take root, the next Alstom-Siemens deal may not prove so easy to reject.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering Brussels. He previously worked at Reuters and Forbes.

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