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Consultations with French and German works councils on the tie-up between French rail equipment specialist Alstom [EPA:ALO] and Siemens' [FRA:SIE] Mobility Division will kick off in two weeks, two sources close to the situation said.

Siemens and Alstom today (27 September) signed a Memorandum of Understanding to combine the German company's rolling stock and rail business (Mobility) with Alstom is a merger of equals. The deal will see Siemens issued with 50% of the new entity. The listing and the headquarters of the new entity will be in Paris, and led by Alstom's CEO.

Siemens' work councils were only formally informed yesterday evening or this morning (27 September) on a possible deal with Alstom, a third source close said.

Up until yesterday, Siemens had two different options on the table - a tie-up with Bombardier[TSE:BBD.A/B] or with Alstom, the third source said. The deal with Alstom eventually won because Siemens and Alstom are more complementary, while Bombardier has some 'structural problems', the source said.

Bombardier approached Siemens a few months ago and the deal stalled partly because job safeguards were not guaranteed in Germany, a banker following the situation said. Bombardier is probably not satisfied about this merger, this banker said.

However, in the mid term, a greater merger between Siemens/Alstom and Bombardier to compete against Chinese Railway Rolling Stock Corporation (CRRC), cannot be ruled out, this banker added.

Jobs safeguard in France and Germany will be key in the coming negotiations with work councils, the first two sources said.

A spokesperson for Siemens said German and French unions have publicly said the tie-up between Siemens and Alstom takes the rail industry forward in a context of economic pressure and growing competition from Asian players.

Alstom declined to comment.

The advance of China's state-owned CRRC in the European market with the ongoing acquisition of Czech company Skoda Transportation is seen as a greater threat, encouraging political approval of the deal.

“The French government supports this merger of equals which will be the advent of a French and German champion of rolling stock and signalization (…) and which will strengthen the European companies competitivity in a more and more concentrated global market," French economy minister Bruno Lemaire said in a statement.

The French State also supports the transaction based on undertakings by Siemens, including a standstill at 50.5% of Alstom's share capital for four years after closing, the headquarters and the listing remaining in Paris and employment protections, according to the deal statement.

In light of the strategic interest of the transaction, which is acknowledged by most employees of Alstom, it is likely there will be no frontal opposition of the works council at the end of the day, Emmanuel Durand, partner and EU competition lawyer at De Pardieu Brocas Maffei said. In four years, however, nothing prevents Siemens from fully taking over Alstom, he added.

The Siemens/Alstom tie-up is welcome to compete against CRRC should the job safeguards be insured, French MP and deputy head of the French assembly European affairs committee, Pieyre-Alexandre Anglade, told this news service.

A German company is acquiring a French company to create a European champion for the greater good of the EU economy. PSA acquired Opel for the same reason and we did not have that much opposition to it, he added.

The standstill and employment commitments are to appease French political opposition and push the deal through, as, while presented as a merger of equals, it is effectively a takeover of Alstom by Siemens, a second Paris-based banker said.

There is political opposition surrounding the deal in France as Alstom is compared to Airbus [EPA:AIR], which has a balanced shareholding structure between German and French counterparts, the banker said. This is not the case for Alstom which already sold its power operations to General Electric's [NYSE:GE] in 2014, he said.

Some politicians are pushing the French government to take a significant stake in the new entity by using the 20% stake it could take from French construction group and minority shareholder Bouygues [EPA:EN] which currently holds a 28% stake, the banker said.

The French government yesterday confirmed that the loan of Alstom shares from Bouygues SA (20%) will be terminated in accordance with its terms of no later than 17 October 2017 and that it will not exercise the options granted by Bouygues to acquire the stake.

Alstom has 8,500 employees in France and 2,000 in Germany. In total, the new entity will have 62,300 employees in over 60 countries and a combined revenue of EUR 15bn.