Network Rail generic signal

UK: The Competition & Markets Authority has expressed concern that Hitachi Rail’s planned acquisition of Thales’ Ground Transportation Business could eliminate a credible competitor for the supply of signalling systems, at a time when efforts are being made to increase competition in the UK market.

Hitachi Rail announced a €1.66bn deal to acquire Thales’ signalling control and revenue collection activities in August 2021. Following an assessment, on December 9 this year the CMA raised concerns about the potential impact on the supply of main line signalling and control systems, and metro communication-based train control.

A 2021 study by the Office of Rail & Road had found that the UK signalling market is highly consolidated, being dominated by Siemens and Alstom and with high barriers to entry. ORR made recommendations to increase competition from alternative suppliers such as Hitachi and Thales, which currently have a limited presence in the UK signalling markets but are established players elsewhere and would be expected to bid for work under Network Rail’s Train Control Systems Framework which is designed to increase competition.

Meanwhile Thales is the largest provider of CBTC to Transport for London, and while Hitachi Rail has a much smaller position the CMA said it is one of ‘a limited number of rivals with the capabilities to challenge Thales’.

Hitachi Rail and Thales now have until December 16 to submit proposals to address the CMA’s concerns, and CMA has until December 23 to consider whether to accept these or refer the deal for an in-depth Phase 2 investigation.

‘This deal involves two of the main competitors for future main line rail and urban metro signalling projects, so the loss of competition could risk higher costs and lower quality services, which would ultimately come at the expense of taxpayers and passengers’, said Colin Raftery, Senior Mergers Director at the CMA.

Thales and Hitachi Rail said the CMA’s announcement means it is now likely that the closing of the transaction would occur in H2 2023, instead of early 2023.

The companies said they ‘remain committed to working with all regulatory bodies to ensure the successful close of the transaction as soon as possible’, and have obtained merger clearances in nine out of the 13 required jurisdictions.

Hitachi Rail is currently in discussion with the European Commission’s Directorate-General for Competition with a view to securing approval in the European Union, and said it was ‘disappointed’ by the impact of the CMA’s decision on the timeline for the deal.