The logo of Alstom is seen on the high-speed train TGV factory of the company in Belfort, France.Vincent Kessler/Reuters
French train maker Alstom SA has won approval from European regulators to take over Bombardier Inc.‘s rail business, clearing a path for the Canadian manufacturer to lighten its debt load and become a standalone producer of luxury jets next year.
The European Commission initially voiced concerns about Alstom’s expanded market clout with the deal, but gave its blessing to the €7.45-billion ($11.8-billion) transaction Friday after concessions proposed by the company. Among the things Alstom is pledging to do, according to a statement from the commission: sell assets attached to Bombardier’s Zefiro high-speed train venture with Japan’s Hitachi and sell its own Reichshoffen factory in France.
“Going forward, a stronger combined Alstom and Bombardier entity will emerge,” commission executive vice-president Margrethe Vestager said. “At the same time, thanks to these remedies, the new company will also continue to be challenged in its core markets to the benefit of European customers and consumers.”
Bombardier shares climbed 2.9 per cent in Toronto trading on the news, to 46 cents.
The decision means the companies can push ahead toward closing the takeover as expected in the first half of 2021 without undergoing a more in-depth antitrust review. That speedier timeline is crucial for Bombardier in particular, which needs proceeds from the sale in order to fix its capital structure and stave off yet another cash crunch that would threaten its future.
“The approval is surprising in view of the strong market presence of the new company in important vehicle segments and countries, and the critical stance that the EU Competition Commission took” last year in blocking Alstom’s proposal to merge with Germany’s Siemens AG, said Maria Leenen, founder of rail consultancy SCI Verkehr GmbH in Hamburg. “It is possible that the governments of Germany and France have been able to express their concern for jobs – particularly at Bombardier – so maybe the Commission has given in to prevent anything worse from happening”.
Around 36,000 people worked for Bombardier’s train business as of December, including 4,600 in Canada, according to the Bombardier website. The company’s main Canadian manufacturing sites are located in Thunder Bay and La Pocatière, Que.
top 10 rolling stock
manufacturers, 2019
Ranked by estimated new rolling stock revenue,
in billions of euros
Rank
Company
New rolling stock revenue
CRRC
Alstom Bombardier*
Bombardier Transp.
Alstom
Transmashholding
Siemens Mobility
Trinity
Stadler Rail
Hitachi Rail
The Greenbrier Cos.
Wabtec
0
5
10
15
€20
*Combined revenues of Alstom and Bombardier show their
position after potential merger.
JOHN SOPINSKI/THE GLOBE AND MAIL
SOURCE: SCi verkehr
top 10 rolling stock manufacturers, 2019
Ranked by estimated new rolling stock revenue,
in billions of euros
Rank
Company
New rolling stock revenue
CRRC
Alstom Bombardier*
Bombardier Transp.
Alstom
Transmashholding
Siemens Mobility
Trinity
Stadler Rail
Hitachi Rail
The Greenbrier Cos.
Wabtec
0
5
10
15
€20
*Combined revenues of Alstom and Bombardier show their
position after potential merger.
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: SCi verkehr
top 10 rolling stock manufacturers, 2019
Ranked by estimated new rolling stock revenue, in billions of euros
Rank
Company
New rolling stock revenue
CRRC
Alstom Bombardier*
Bombardier Transp.
Alstom
Transmashholding
Siemens Mobility
Trinity
Stadler Rail
Hitachi Rail
The Greenbrier Cos.
Wabtec
0
5
10
15
€20
*Combined revenues of Alstom and Bombardier show their position after potential merger.
JOHN SOPINSKI/THE GLOBE AND MAIL, SOURCE: SCi verkehr
The Alstom takeover, announced in February, will dramatically change the face of Bombardier and mark the end of a multiyear retrenchment that has seen it exit commercial aviation and sell several other assets. One of Canada’s most illustrious but troubled industrial manufacturers, it will stop building high-speed trains, streetcars and other rail equipment, and set out on a new path focusing solely on private business aircraft.
The deal will also give Bombardier a financial reset by allowing it to pay down a major chunk of its US$9.3-billion long-term debt, which has been a stranglehold on the company and has raised repeated doubts about its ultimate viability. Bombardier has said its net proceeds from the sale will be US$4.2-billion to US$4.5-billion.
Bombardier’s trains unit, known as Bombardier Transportation (BT), has historically acted as a generally dependable revenue generator to offset its more cyclical aviation business. More recently, however, BT has encountered problems delivering on several big contracts, and it is either making no money or losing money on some of them, the company confirmed earlier this year in its fourth-quarter earnings report.
Canadian pension fund Caisse de dépôt et placement du Québec holds a 32.5-per-cent stake in Berlin-based BT and has been encouraging Bombardier for years to explore its options for the train unit, insisting the business would be strengthened by combining its operations with another manufacturer. Bombardier made a proposal to merge BT with Siemens in the fall of 2017, but was rebuffed.
Unlike the failed Alstom-Siemens tie-up, a combined Alstom-Bombardier contains less overlap on high-speed trains and signalling equipment. That raised the odds for regulatory approval, analysts at investment bank Berenberg have said. The two companies also had the advantage of working from the rejected Alstom-Siemens merger to draft their own plans.
BT is one of the world’s biggest makers of trains and rail equipment, with products that include subway systems, trams, automated people movers and intercity trains. Revenues for the business last year totalled US$8.3-billion, while the backlog of orders was worth US$33.1-billion at the end of March.
Alstom had been trying for some time to strike a big deal, in good part to compete with the new breed of Chinese train giants that are trying to crack the European and North American markets, where its presence is scant. The French government threw its support behind the Alstom-BT merger.
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