Alstom Acquiring Bombardier Transportation

Alstom Avelia Liberty for Amtrak’s Northeast Corridor. Alstom illustration.

Alstom has signed a memorandum of understanding (MOU) with Bombardier and pension fund Caisse de Dépôt et Placement du Québec (CDPQ) to acquire Bombardier Transportation, ending weeks of speculation about a proposed tie up between the two railway equipment manufacturers.

Alstom will acquire 100% of Bombardier Transportation’s shares at between €5.8 billion and €6.2 billion. Under the deal, CDPQ, which currently holds a 32.5% stake in Bombardier Transportation, will become Alstom’s largest shareholder with around 18% of capital. CDPQ will reinvest about €2 billion in Alstom plus an additional €700 million. Bouygues will remain a shareholder in Alstom with around 10% of capital.

The signing of the MOU was unanimously approved by the boards of both Alstom and Bombardier. The transaction is fully supported by CDPQ and Bouygues.

An extraordinary general meeting to vote on the reserved capital increases and the rights issue will take place no later than Oct. 31, 2020. This will be followed by a rights issue between the first half of 2020 and the first half of 2021.

The transaction is subject to approval from relevant regulatory and anti-trust authorities, and closure of the deal is expected in the first half of 2021. However, this will be a challenge bearing in mind that the planned merger between Alstom and Siemens Mobility was overturned by the European Commission almost exactly one year ago over the potential impact of the deal on competition in the signaling and high-speed rolling stock markets.

The acquisition of 100% of Bombardier Transportation shares will be paid through a mixture of cash and new Alstom shares. The total equity component is about €5 billion, of which €2 billion will be raised on the market. €2.6-2.8 billion of equity will be provided by CDPQ for a fixed price of €44.45 per Alstom share. Bombardier will provide €500 million in equity for a fixed price of €47.50 per Alstom share. A €2.4 billion bridging facility will be fully underwritten by banks and refinanced by equity of up to €2 billion to be raised through a rights issue and new debt of about €400 million.

Once the transaction is completed, Alstom will have an order backlog of around €75 billion and annual revenues of around €15.5 billion.

“I’m very proud to announce the acquisition of Bombardier Transportation, which is a unique opportunity to strengthen our global position in the booming mobility market,” said Henri Poupart-Lafarge, Chairman and CEO of Alstom. “This acquisition will improve our global reach and our ability to respond to the ever-increasing need for sustainable mobility. Bombardier Transportation will bring to Alstom complementary geographical presence and industrial footprint in growing markets, as well as additional technological platforms. It will significantly increase our innovation capabilities to lead smart and green innovation.”

“We welcome this announcement,” said Bombardier Transportation President Danny Di Perna. “We see great geographic and product complementarity with potential to translate into increase capacity to respond to the growing global demand for rail. With a shared commitment to the next generation of green and digital rail solutions, a combined company would benefit from economies of scale resulting into improved investment and innovation capabilities, and a streamlined investment pipeline.”

Alstom says the two companies operate in a growing market with passenger traffic expected to increase by between 3% and 5% annually between 2015 and 2025, and a global rail OEM market expected to achieve a 3% cumulative annual growth rate between 2021 and 2023.

Comparison

Alstom had an order backlog of €40 billion and €8.1 billion of annual sales at the end of its financial year on March 31, 2019. By comparison, Bombardier Transportation had a €32 billion order backlog and €7.4 billion of sales as of December 2019. After the transaction, Alstom says it expects to benefit from significant additional technologies and added R&D resources.

Montréal will become the headquarters of Alstom of the Americas, leading all Alstom operations and expansion in North America. Alstom will establish a center of excellence for design and engineering in Quebec, as well as high-tech R&D activities focused on developing sustainable mobility solutions.

“The acquisition of Bombardier Transportation is a one-time opportunity coming at the right moment for Alstom, having significantly strengthened its operational and financial profile over the past four years, and adding to Alstom complementary commercial and industrial platforms,” Alstom said.

Alstom says the deal will enable it to broaden its commercial reach in Germany, Britain, and North America and give it access to Bombardier Transportation’s unique presence in China and what Alstom describes as a best cost industrial footprint in Eastern Europe, Mexico and China. The takeover will add monorail and people-mover systems to Alstom’s product portfolio, and give Alstom’s services business access to the largest installed train fleet worldwide and a wide range of maintenance facilities. Both companies are active in the railway signaling market.

Recovery Plan

Alstom says it is committed to recover Bombardier Transportation’s full operational and profitability potential with the objective of restoring project execution and margin. This is important as Bombardier Transportation has been suffering from declining profits largely caused by a series of major delays in delivering new fleets of trains (among them Flexity streetcars for the Toronto Transit Commission and R-179 subway cars for New York City Transit and reliability problems once trains are in service. Bombardier Transportation announced a 7% drop in revenue from US$8.9 billion in 2018 to US$8.2 billion in 2019 when it released its consolidated full year results on Feb. 13.

Alstom said it plans to fix the problems at Bombardier Transportation by focusing on operational turnaround and backlog execution based on Alstom best practices, systematic rollout, a structured action plan to ensure successful integration and deployment of Alstom best practices and technologies globally. The company will also instill Alstom’s financial discipline and successful track record in profitability growth. Alstom says it already has a good understanding of Bombardier Transportation through numerous projects on which the two companies have worked together.