LONDON/MONTREAL (Reuters) - The European Commission’s decision to block a tie-up between Alstom and Germany’s Siemens is fueling speculation over possible merger talks between the French rail business and Canada’s Bombardier, lifting both companies’ shares on Wednesday.

The logo of Alstom is seen on the company's TGV high-speed train factory in Belfort, France, February 6, 2019. REUTERS/Vincent Kessler

EU anti-trust regulators rejected the Alstom-Siemens deal, saying that it would have hurt competition and led to higher prices for consumers, despite concessions offered by the companies.

The deal’s collapse helped Bombardier avoid the creation of the world’s second largest rail company that would be roughly twice its size.

It also gives the Canadian plane and train maker “a better set of options,” when weighing strategies like potential mergers, said Toronto-based AltaCorp analyst Chris Murray.

“Ultimately the need to consolidate in the industry has not gone away.”

Rail companies are eyeing consolidation to reduce costs through scale in a market dominated by China’s state-owned CRRC, the world’s largest train maker.

Following the news, Berenberg analysts upgraded Alstom to a ‘buy’ rating and set a new price target of 42 euros ($47.9), noting that Alstom may now seek an alternative deal with Bombardier’s Berlin-based transportation division.

“We believe there is a higher chance for anti-trust approval than the Siemens/Alstom tie-up due to lower European market share in high speed rail and signaling,” Berenberg said in a note to clients.

Bombardier aims to turn its transportation unit, the company’s largest division by revenues, into a $10 billion business by 2020, even as it sheds money-losing plane programs.

Sources, including French officials, who spoke to Reuters on condition of anonymity to discuss the sensitive matter, agreed that a potential Alstom-Bombardier merger would likely face less resistance from regulators, but one noted that such a deal could require divestitures in France.

Still, a potential Alstom-Bombardier merger would have less strategic value than a tie-up with Siemens, which is strong in higher-margin signaling assets, the sources said.

Bombardier, which wants to grow its signaling business, is strong in lower-margin rolling stock, with “Alstom a bit in between,” the French officials added.

“If you merge Alstom with Bombardier, you end up with a lot of ‘iron’ put together” one of the officials said.

Bombardier, which held its own failed merger talks with Siemens in 2017, would not specifically discuss future prospects or say how the collapse of the Alstom-Siemens tie-up impacts the company.

“We will keep looking at opportunities to create the best value for our shareholders,” Bombardier said in a statement.

An Alstom spokesman said any future rail consolidation in Europe would be examined in light of the failed Siemens-Alstom tie-up.

“If the rules do not change, it is difficult to imagine the consolidation of our sector in Europe.”

Alstom stock in Paris was up 4 percent at 2:32 p.m. EST (1932 GMT) after hitting its highest since Dec. 18, while Siemens shares in Frankfurt were down 0.96 percent. Bombardier shares rose more than 7 percent in early afternoon trading in Toronto.