By Arno Schuetze and Allison Lampert
FRANKFURT/MONTREAL (Reuters) - Canada's Bombardier Inc missed out on a merger of its rail unit with Germany's Siemens because of a reluctance by Siemens to cede control of its business, allowing France's Alstom (PA:ALSO) to clinch a deal with the German firm, with help from new French president Macron, three sources close to the negotiations told Reuters.
Siemens and Alstom announced a merger of their train manufacturing operations on Tuesday, leaving Bombardier competing in a market dominated by China's state-owned CRRC Corp, the world's largest train maker. The combined Siemens and Alstom group will become the second biggest.
The deal gave Siemens 50 percent in the new group, plus a few shares of the joint venture, while Alstom will supply Henri Poupart-Lafarge as chief executive.
In the talks between Bombardier and Siemens, both "wanted to be in the driver seat", complicating the negotiations, one of the sources said.
Another source said Siemens felt uncomfortable with Bombardier's nearly $9 billion debt, adding the Canadian company's financial woes caused "big headaches" at Siemens.
Bombardier, which considered bankruptcy in 2015, has received more than $1 billion in federal and provincial government aid since 2015.
The Siemens-Alstom deal also had the blessings of French politicians, despite France losing control of the manufacture of its high-speed TGV train, a symbol of national pride that has highlighted French engineering skill, the people added.
Siemens and Alstom declined comment.
Bombardier declined to comment on the deal but said it "has the scale, the technology and the people to compete and win in any competitive landscape."
Sources declined to be identified as the discussions were confidential.
SIEMENS SAW ALSTOM AS BETTER FIT
Siemens, Bombardier and Alstom had been exploring rail joint ventures since 2015 to withstand the global advance of China's CRRC Corp, and the talks between Bombardier and Siemens initially gained traction.
Early this year, Siemens Chief Executive Joe Kaeser made the decision to enter into talks with Bombardier after deciding the chances of concluding a deal with Alstom were slim, citing political obstacles and a traditionally hostile relationship between the two firms going back decades, the people said.
Those factors led Siemen's Kaeser to instead pursue a deal with Bombardier and, by early August, people familiar with the matter said, the two companies were close to agreement.
The deal had the support of one of Bombardier's biggest shareholders, Caisse de depot et placement du Quebec, whose Chief Executive Michael Sabia has said consolidation is necessary to enable North American and European operators to compete with China's CRRC..
Caisse did not immediately respond to requests for comment.
A deal between Bombardier and Siemens would have created two separate joint ventures, with Bombardier taking a stake of over 50 percent in the rolling stock operations and Siemens taking a roughly 80 percent stake in the higher-margin signalling technology business, sources told Reuters in July.
While Siemens had been happy to give up the majority of its rolling stock business it was unwilling to relinquish control of its signalling business which is the biggest in Europe and its executives made clear they would not compromise, the sources said.
In contrast, a deal between Siemens and Alstom proved to be easier, the sources said, as Alstom was already the European leader in rolling stock and Siemens the leader in signalling.
Alstom re-emerged in July as a potential alternative partner for Siemens with French President Emmanuel Macron and Finance Minister Bruce Le Maire fearing Alstom could be left on the sidelines putting French jobs at risk.
Crucially, they were prepared to support a deal even if it meant France losing control of high-speed TGV train making.
"Macron and Alstom didn't not want to be left out. They wanted (to create) an Airbus of rail," said one source familiar with the talks.
