Bombardier sells rail operations to Alstom, reports WSJ

The Wall Street Journal reported Sunday that after weeks of rumours and discussions, Bombardier, which is trying to reduce its heavy debt, is about to sell its train division to French giant Alstom.

A preliminary agreement worth more than US$7 billion has been reached, according to the New York daily, citing anonymous sources. The deal could be announced as early as Monday, media reports said.

France's Alstom reached a preliminary deal to acquire Bombardier’s train business for more than $7 billion, people familiar with the matter say https://t.co/7OHtqAhsMR

— The Wall Street Journal (@WSJ) February 16, 2020

For the Quebec company, the transaction is another item to add to the list of many assets which it has sold - Q400 turboprop aircraft, CRJ regional jets and the former C Series - over the past five years by president and CEO Alain Bellemare.

This is also an important change for the multinational, which will now focus only on the business jet sector intended for wealthy clients.

The announcement of a transaction with Alstom comes as no surprise, since Bombardier, which is dragging long-term debt of US $9.3 billion, announced last month that it was studying its options to accelerate its deleveraging. This suggested that it was ready to part with one of its two main divisions.

Some media reported that a transaction was going to be announced last Thursday when Bombardier released its fourth quarter results after selling its remaining stake in Airbus Canada, which controls the A220, to Alstom and the Quebec government.

Unlike the aeronautics division, Bombardier Transportation, whose head office is located in Berlin, Germany, is much less present in Quebec. It has some 1,000 employees at the La Pocatiere plant in the Bas-Saint-Laurent region, as well as in Saint-Bruno, in the southern suburbs of Montreal.

DETAILS OF THE DEAL

According to the Wall Street Journal, Alstom will offer cash and stocks.

The Journal claims that the Caisse de depot et placement du Quebec (CDPQ), which owns 32.5 per cent of Bombardier Transportation, agreed to sell its stake and then acquire a minority stake in the combined entity.

Together, Alstom and Bombardier Transportation would generate revenue of approximately $18 billion US, according to analyst Benoit Poirier of Desjardins Capital Markets. However, this remains far from the turnover of some US $34 billion from the Chinese giant CRRC - the number one in the industry.

"Something has to happen in the transportation industry," Altacorp Capital analyst Chris Murray said in a telephone interview with The Canadian Press last week amid rumors of a Alstom's imminent offer. "The fact is that the Chinese are very present in this industry and (this presence) will increase."

Faced with noted delays and execution problems with certain major contracts and problems in the United Kingdom, with the Swiss Federal Railways and in Germany, Bombardier saw the performance of its rail division seriously slow in 2019, where it posted earnings before interest and taxes down 97 per cent to US $22 million.

A marriage between Alstom and Bombardier Transportation risks being scrutinized by antitrust authorities, which could delay the conclusion of the transaction. Last year, European authorities vetoed the proposed alliance between the German Siemens and Alstom.

"We believe that a combination of Alstom and Bombardier Transportation would be more likely to get the green light compared to the previous attempt by Alstom and Siemens since there is less overlap between their respective portfolios and that the leaders of the two sides risk wanting to make concessions in order to obtain regulatory approvals," said Poirier in a report released last Friday.

Portrait of Bombardier Transport:

  • Headquarters in Berlin, Germany
  • Revenues of US $8.3 billion (2019)
  • New orders of US $10 billion in 2019
  • US $35.8 billion order book (2019)
  • Some 36,050 employees worldwide, including around 1,000 in Quebec

This report by The Canadian Press was first published Feb. 16, 2020.

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