A merger between France’s Alstom – an employee seen here on Oct. 4, 2019 – and Bombardier Transportation will face intense regulatory scrutiny in Brussels.PATRICK HERTZOG/AFP/Getty Images
Bombardier Inc. is on the verge of a transformational deal to unload its train business to France’s Alstom SA as it looks to a vastly different future exclusively as a maker of private luxury jets.
The companies and their advisers are working through the last steps on an agreement that would see Alstom take over Bombardier Transportation (BT), according to two sources familiar with the situation. The total deal value is in the range of US$7.5-billion including debt, one of the sources said.
On Monday, Alstom confirmed that it is “in discussions with Bombardier regarding a possible acquisition of Bombardier Transportation by Alstom. Discussions are ongoing. No final decision has been made.”
Such an accord would dramatically change the face of Bombardier, setting one of Canada’s most illustrious but troubled industrial manufacturers on a new path focusing solely on private business aircraft. It would also give it a financial reset by allowing it to pay down a major chunk of its US$9-billion debt, which has been a stranglehold on the company and raised repeated doubts about its long-term viability.
Bombardier’s trains unit has historically acted as a generally dependable revenue generator to offset its more cyclical aviation business. More recently, however, BT has encountered major problems delivering on several big contracts, and it is either making no money or losing money on some of them, the company confirmed last week 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 that the business would be strengthened by combining its operations with another manufacturer. Bombardier made a proposal to merge BT with Germany’s Siemens AG in the fall of 2017, but was rebuffed.
Former Caisse chief executive Michael Sabia, who left the job for the University of Toronto earlier this month after a decade-long tenure, was instrumental in brokering the agreement between Bombardier and Alstom, one source told The Globe. The deal was dead and Mr. Sabia saved it, the source said.
The Globe is not identifying the two sources by name because they were not authorized to speak to the media about the transaction.
Bombardier and Alstom both declined to comment. A Caisse spokesman said the pension fund doesn’t comment on rumours.
Alstom will pay Bombardier in cash while the Caisse is agreeing to take shares in Alstom as payment, France’s BFM Business channel reported. That would make the Canadian pension fund Alstom’s biggest shareholder with an estimated stake as large as 20 per cent, the station said.
A merger between France’s Alstom and BT will face intense regulatory scrutiny in Brussels, where European Union competition czar Margrethe Vestager is both feared and respected for her tough anti-trust position. A year ago, she blocked the planned merger between the train businesses of Alstom and Siemens.
Unlike an Alstom-Siemens tie-up, however, a combined Alstom-Bombardier contains less overlap on high-speed trains and signalling equipment. That raises the odds for regulatory approval, analysts at investment bank Berenberg have said. The two companies also have the advantage of working from the rejected Alstom-Siemens merger to draft their own plans.
Bombardier Transportation 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 and it enjoys a backlog of current orders worth US$35.8-billion.
Some 36,000 people worked for BT 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.
Bombardier’s train business has gone through major upheaval in recent years, with several changes of senior leadership. The unit is now led by Danny Di Perna, who has been trying to close out several problematic contracts while boosting profit margins by offering clients more solutions based on the company’s existing technology.
BT’s products include Zefiro trains, which are among the fastest in the world. The company also designed and engineered the high-speed Frecciarossa (Red Arrow) trains used in Italy. Alstom also builds high-speed trains and has a significant signalling business.
Under a five-year turnaround effort led by chief executive Alain Bellemare, Bombardier has been selling assets in a bid to focus on the most promising and profitable parts of its business. Today, it is a shadow of its former self, having unloaded its turboprop-plane business, its aviation-training business and its waterbomber business, among other pieces.
Last week, Bombardier completely exited commercial aviation with the announcement that it pulled out of the A220 airliner joint venture with Airbus SE. The plane is the former C Series airliner developed by Bombardier at a cost of more than US$6-billion. It was the company’s biggest research and development effort in its history, a nearly two-decades-long push funded in part by public money with the aim to put Bombardier at the cutting edge of global passenger-jet manufacturing.