French train maker Alstom SA agreed to buy the rail unit of Bombardier Inc. for as much as 6.2 billion euros ($6.7 billion) to almost double in size, as the Canadian company offloads assets following a costly expansion in aerospace.
Alstom, based in Saint-Ouen, near Paris, will pay as little as 5.8 billion euros in the cash-and stock transaction outlined in a memorandum of understanding, according to a statement Monday. The acquisition is likely to add to earnings per share within two years and generate as much as 400 million euros in annual savings for Alstom within five years.
Combining with Bombardier Transportation would make Alstom the clear No. 2 in rail equipment and help it counter the industry leader, China’s CRRC Corp., which is increasingly targeting global sales. Alstom is making a second attempt to bulk up, after a plan to merge with the rail unit of Germany’s Siemens AG was blocked last year by the European Union on antitrust considerations.
Canadian pension fund Caisse de Depot et Placement du Quebec will become Alstom’s biggest shareholder with an 18% stake, after reinvesting its 2 billion-euro holding in Bombardier Transportation and topping it up by 700 million euros.
Alstom shares advanced 3.5% to 50.30 euros earlier Monday in Paris, after both companies confirmed the talks. Bloomberg News reported last week that negotiations were at an advanced stage, following its initial Jan. 21 report on the discussions.
The merged rail business would have annual sales of more than 15 billion euros, according to German consultancy SCI Verkehr, still well behind CRRC but comfortably ahead of Siemens and Japanese bullet train maker Hitachi Ltd.
Montreal-based Bombardier has been offloading assets to pay down debt following a costly expansion of its commercial aviation business. The embattled transportation firm shocked the market last month by warning of disappointing fourth-quarter sales. Bombardier announced Thursday it will exit a venture with Airbus that builds the A220 jetliner to preserve cash.
“While it has been a demanding five-year turnaround journey, we’re now landing Bombardier in a great place,” Chief Executive Officer Alain Bellemare told analysts on a call. A strengthened balance sheet “positions us to compete and win in the business aviation market.”
Consolidation
A planned combination of Alstom and Bombardier’s Berlin-based rail division would face close antitrust scrutiny, having a nearly 50% share of the market for electric multiple units and a leading position in Europe’s urban transport market, according to analysis by SCI Verkehr.
French Finance Minister Bruno Le Maire will discuss the plan with EU Competition Commissioner Margrethe Vestager on Tuesday, he said in a statement. The companies have discussed potential remedies to address antitrust concerns, people familiar with the matter have said.
A takeover of Bombardier’s rail business by Alstom would mark the latest attempt by some of the world’s biggest trainmakers to counter growing competition from China. Bombardier in 2017 held talks to combine its rail operations with Siemens until the German company suddenly opted to pursue the deal with Alstom.
It ultimately failed in February 2019, when the European Union blocked the plan, which the companies said would have created a European rail champion. Regulators refused to cave in to warnings by executives and politicians from both France and Germany about the looming threat of Chinese competition.
Bombardier in 2015 sold a 30% stake in its Berlin-based train business to Quebec’s CDPQ, valuing the unit at $5 billion at the time and helping the firm raise capital as it faced a cash drain from delays for its new jets.
Alstom said Monday it has lined up financing and also plans a rights issue to finance the acquisition. The company expects to close the transaction in the first half of 2021, subject to regulatory and antitrust approval.
Alstom was advised by Rothschild & Co. and Société Générale SA while Bombardier worked with Citigroup Inc. and UBS Group AG.
