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Old July 7th, 2009, 07:31 PM   #1
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MISC | Economic Stimulus Benefits Rail Manufacturers

INTERVIEW-UPDATE 1-Alstom in exclusive talks on mega train deal

AIX-EN-PROVENCE, France, July 4 (Reuters) - Alstom Transport is in exclusive talks with France's SNCF for a multi-billion euro train deal, an Alstom executive said on Saturday, adding the division was open to acquisitions.

"Negotiations are not over yet but we are now the preferred bidder for the final negotiation... We are in exclusive talks," Philippe Mellier, head of Alstom Transport, the maker of TGV trains and a unit of heavy engineering group Alstom, told Reuters on the fringes of an economic forum in southern France.

"The contract is for a firm order and then there is an option for more. In total, it could be up to 1,000 regional trains," he said, confirming a figure reported by French newspaper Le Figaro earlier this week.

Alstom was vying with industry leader Bombardier on the contract.

Mellier declined to say how many trains there could be in the SNCF's firm order, saying this was still under discussion, but he said he expected the deal to be finalised in September.

"This would be an extraordinary order for us if it was finalised, and I hope it will be... But the final amount of the order has not been finalised yet as we don't know how many trains there will be in the firm part and in the option."

"This will be certainly several billions of euros but not 15 billion," euros as reported by Le Figaro. The deal could spread over at least 10 years if 1,000 trains were confirmed, he added.


Mellier said stimulus plans launched by governments worldwide were creating opportunities for new contracts in countries such as France, Britain, Brazil and the United States.

He cited projects for new high-speed train lines in France, Brazil and the United States, and bids for train fleets in Saudi Arabia and Thameslink in and around London.

"We see that stimulus packages pour money into the railway industry," Mellier said.

Asked about the possibility of making acquisitions, Mellier said: "We are not excluding looking at things.

"We had an enormous opportunity with TMH and despite the crisis we went for it. If there are other opportunities we will look at them, of course if they are in line with our strategy and our financial hygiene. We won't do anything at any price."

He said Alstom Transport had no specific budget for a deal.

"If we want to do it... there will be money to do it."

Alstom announced in March that it was buying 25 percent of Russia's TransmashHolding (TMH), for a price that would depend on the company's performance between 2008 and 2011, and that the two would develop new rolling stock for the Russian market.

"We're finalising the deal but the sale is irrevocable. Only the price is not known."

He said Alstom was making a first payment of $75 million and the balance would be paid on the basis of the three years with a multiple that has been negotiated.

"We become the owners of shares on day one but the balance will be paid in 2012," Mellier said, adding the contract would be finalised in the autumn.

At the start of 2008, Ernst & Young valued TMH at between $2.38 billion and $2.9 billion, which would have made a 25 percent stake worth between $600 million and $725 million.

Since then, the market for rail cars has been hit by the financial crisis, depressing the value of the company while emptying its order books, analysts have said.

Mellier also confirmed Alstom Transport and TMH would jointly develop an electric locomotive, that will be built near Rostov and adapted to the Russian market and Commonwealth of Independent Countries.

"We could one day sell the product as a low-cost locomotive in other countries but this is really a second step. For now the idea is to meet demand in a gigantic market," Mellier said, citing a need for 1,000 new trains each year in the region.
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