Siemens and Alstom signed a memorandum of understanding September 26 to combine Siemens' mobility business—including its rail traction drives business—with Alstom.

The companies say the combination will better enable them to counter competition from China’s state-owned CRRC Corp Ltd.

Joe Kaeser, president and CEO of Siemens AG, says in a statement, "The global market-place has changed significantly over the last few years. A dominant player in Asia has changed global market dynamics and digitalization will impact the future of mobility. Together, we can offer more choices and will be driving this transformation for our customers, employees and shareholders."

Siemens will receive newly issued shares in the combined company representing 50 percent of Alstom's share capital on a fully diluted basis.

The new entity has an order backlog of €61.2 billion ($72 billion), revenue of €15.3 billion ($18 billion), an adjusted EBIT of €1.2 billion ($1.41 billion) and an adjusted EBIT-margin of 8.0 percent, based on information from the last annual financial statements of Alstom and Siemens.

In a combined setup, Siemens and Alstom expect to generate annual synergies of €470 million in year four post-closing and targets net-cash at closing between €0.5 billion to €1.0 billion. Global headquarters as well as the management team for rolling stock will be located in the Paris area and the combined entity will remain listed in France. Headquarters for the Mobility Solutions business will be located in Berlin, Germany. In total, the new entity will have 62,300 employees in over 60 countries.

The board of directors of the combined group will consist of 11 members and will be comprised of six directors designated by Siemens, of which one being the chairman, four independent directors and the CEO. Henri Poupart-Lafarge, will continue to lead the company as CEO and will be a board member. Jochen Eickholt, CEO of Siemens Mobility, will remain with the merged entity. The corporate name of the combined group will be Siemens Alstom.

The envisaged transaction is unanimously supported by Alstom's board (further to a review process of the preparation of the transaction by the audit committee acting as an ad hoc committee) and Siemens's supervisory board.

The transaction is subject to clearance from relevant regulatory authorities, including foreign investment clearance in France and anti-trust authorities as well as the confirmation by the French capital market authority. Closing is expected at the end of calendar year 2018.