Interesting Read.
Bombardier on dual track for London
subway work
Deal for Adtranz puts firm in win-win position
ALAN FREEMAN
European Bureau
Thursday, August 17, 2000
London -- Bombardier Inc.'s planned purchase of Adtranz has given
it a foot in the two camps that are vying for a multibillion-dollar
contract to overhaul and maintain the partly privatized London
Underground.
The $1.1-billion takeover of DaimlerChrysler AG's passenger rail
unit would give the Montreal-based transportation giant a stake in both
of the consortiums that are finalists in the competition for the partial
privatization of the subway system known as the Tube.
But the probability that Bombardier has secured itself a share of the
contract has raised significant competition concerns. It could prompt
an angry reaction from London's new mayor, Ken Livingstone, who
recently lashed out at some of the contract bidders as "the worst scum
of modern British capitalism."
And the deal is expected to get close scrutiny from the European
Commission's competition authorities, who have been coming down
hard on mergers lately, effectively halting Alcan Aluminium Ltd.'s
proposed fusion with Pechiney SA.
Last month, the London Underground announced that it had
short-listed two consortiums for the partial privatization of three of the
most heavily used lines in the subway system.
Under the plan, the winning bidder will be granted a contract for up to
30 or more years to build and maintain all track, stations and rolling
stock on the lines, although trains will be run by the Underground itself.
As a member of the London Infrastructure Consortium, Bombardier's
transportation division is bidding to supply trains; the Metronet
consortium includes Adtranz as its train supplier. Other consortium
members include construction, engineering and systems firms.
What the deal with DaimlerChrysler means is that no matter which
consortium wins, Bombardier would end up as the supplier of rolling
stock for a contract covering the Bakerloo, Central and Victoria lines.
The London Underground and its owner, the British government, insist
that Bombardier has promised to keep its role in the competing bids
separate and will assure that Adtranz and Bombardier Transportation
maintain confidentiality. Regulatory approval, particularly in Europe, for
the acquisition's completion could take up to six months.
"We are monitoring the situation but commercial moves of this kind are
not unusual and there are well-established procedures involving
Chinese walls for maintaining integrity and competition," said Nuala
Mason, a spokeswoman for the British Transport Ministry.
"We all know that Chinese walls have great big gaping holes in them,"
countered Dave Wetzel, vice-chairman of Transport for London, the
local authority due to take over responsibility for the Tube after the
partial privatization has been completed.
Mr. Wetzel said he thinks Bombardier's planned stake in the two
competing bids should be investigated by the European Commission's
competition agency, which is already analyzing the Adtranz transaction.
"I wonder whether they are not breaking those competition rules by
being in both camps."
Susan Kramer, who ran unsuccessfully for London mayor in the May
election but is on the Transport for London board, thinks the
government and London Underground are "extremely naive" if they
believe Bombardier's purchase of Adtranz won't have an impact on the
contract bidding.
Although she is convinced that Bombardier will respect the Chinese
Wall principle, "it changes the approach of how you run your particular
bid because you're no longer afraid of losing your bid. You're now
interested in reducing your risk."
Bombardier denies there's any problem.
"We're two separate companies until the deal is completed,"
Bombardier spokesman Michel Lord said in an interview from
Montreal. "The two bidders are supposed to present their best and
final offer in November of this year. In all probability, the bids will be
presented before the transaction is completed."
The contract at stake is huge. The Central Line, at 74 kilometres, is the
system's longest and in 1999 carried 176.5 million passengers. One
station alone, Oxford Circus, handles 66.1 million passengers a year.
Under the partial privatization scheme, the Underground has been
divided into three chunks with each going separately to bid. The plan is
designed to inject about $18-billion into the antiquated system, parts of
which date to the mid-19th century, through new and remodelled
trains, modernized track and improved stations.
Tony Travers, who heads the Greater London Group at the London
School of Economics, said the competitive issue raised by the Adtranz
deal highlights the fact that "there is an extremely small number of
companies able to do this kind of work," which has been reduced
further by the transaction.
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