Bombardier agrees to sell rail business to Alstom in $8.2 billion

Canada’s Bombardier said on Feb 17, 2020, it had agreed to sell its rail division to France’s Alstom for an enterprise value of $8.2 billion, Bombardier is focusing more on aviation and pays down debt.

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Bombardier agrees to sell rail business to Alstom in $8.2 billion
Bombardier agrees to sell rail business to Alstom in $8.2 billion

Montreal, Canada (Metro Rail News): Canada’s Bombardier has struck a deal to sell its rail business unit to French train giant Alstom SA, as it focuses more attention on its aviation business and pays down debt.

On February 17, 2020, Alstom announced it had signed a memorandum of understanding (MoU) with Bombardier and Caisse de dépôt et placement du Québec, Quebec’s pension fund manager (major shareholder)

Under the deal, Bombardier’s transportation unit to sold Alstom in the US $8.2 billion.

“I’m very proud to say the purchase of Bombardier Transportation, which is a unique opportunity to increase our global position on the booming mobility business,” said Alstom CEO Henri Poupart-Lafarge

As part of the deal, the Caisse de dépôt et placement du Québec — the province’s pension fund manager is also becoming the Alstom’s largest shareholder with an 18 % stake in the company.

The Caisse’s stake in Bombardier Transportation will turn into shares in Alstom. It would have two representatives to sit on Alstom’s Board of Directors, and it will also appoint a board observer.

Caisse CEO Charles Emond said that the transaction will provide possibilities to grow and develop expertise in Quebec.

The transaction, if accepted by European regulators, could mean up to $4.5 billion in net revenue for Bombardier, which is predicted $9.3 billion US of debt, most of that owed by 2025.

But before the deal with Bombardier is finalised, EU competition regulators will have to sign off, which isn’t likely to happen before the first half of 2021.

In 2019, European regulators blocked a proposed merger between Alstom and German industrial conglomerate Siemens AG train division, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.

The sale of the transportation unit leaves Bombardier, a once stretch company involved in everything from snowmobiles to real-estate finance with only its business jet unit. 

“Going forward, we will focus all our capital, energy and resources on accelerating growth and driving margin expansion in our market-leading US$7 billion business aircraft franchise,” said CEO Alain Bellemare.

Bombardier Transportation’s main office is based in Germany and their Quebec operations employ about 1,000 labourers at the La Pocatière plant in the Bas-Saint-Laurent region, along with in Saint-Bruno-de-Montarville, in the southern suburbs of Montreal, Canada.

Politically sensitive deal

The breakdown of Bombardier and the sale of its transportation Business to Alstom SA is a French multinational company, is politically sensitive in Quebec, where the company has been held up as a local success story.

Bombardier transportation division’s get its first contract in 1974 to build subway cars for the Montreal Metro that began Bombardier’s expansion beyond the niche market of snowmobiles and other recreational vehicles.

What will happen to Bombardier jobs?

Bombardier Transportation jobs outside Quebec is less clear after the February 17, 2020 deal. The Rail business unit employs 3,500 people across the country, including several hundred in Thunder Bay and Mississauga, Ont.

The Bombardier deal will also allow Alstom to gain a bigger footprint in the North American market, as well as eastern Europe and Mexico.

Alstom is forecasting the market for rail and rail systems will expand 3% to 5% annually until 2025 with demand for high-efficiency, low-carbon transit from cities set to grow,

Alstom was looking to make a major acquisition in order to fend off its main rival, Chinese state-owned largest rolling stock manufacturer in the world.

The downfall of Bombardier Transportation 

Although the Bombardier’s Rail manufacturing business unit has remained to bring clients, it became in recent years exhaustion on the company’s cash flow as well as its reputation.  

The company frequently missed delivery targets for an order of 204 streetcars in Toronto, prompting the city to sue Bombardier in 2015.

More recently, Bombardier Transportation incurred hundreds of millions of dollars in penalties for missing delivery targets in the United Kingdom and Germany.

Last month, when New York City had to pull 300 new Bombardier cars because of mechanical problems, City Comptroller Scott Stringer blamed the company of having sold them “lemons.”

Quebec, France welcome deal

The Quebec government described Monday’s deal as a second-best outcome. Alstom has agreed to open a North American headquarters in Montreal and also promised to open a design centre in the province.

Premier François Legault said he expected Alstom would use the Bombardier plants in Quebec, which employ around 1,500 people, to build vehicles for the North American market. 

“I definitely would have preferred for things to end differently for Bombardier, because this company has occupied, and will continue to occupy, an important place in the Quebec economy,” Legault said in a statement.

“Yes, Bombardier Transportation becomes a French company, but with this acquisition, Alstom will be anchored in Quebec.”

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