French locomotive giant, Alstom to buy Bombardier rail unit for up to US$6.7 bn

FRANCE – Alstom SA, a French multinational company with interests in the locomotive industry, has agreed to buy the rail division of Canada’s Bombardier Inc for up to 6.2 billion euros ($6.7 billion).

The agreement between Alstom and Bombardier would unite companies with an estimated $17 billion in combined revenue.

Reuters reports that the acquisition will create the world’s No. 2 train manufacturer and better position the European company to take on Chinese leader CRRC Corp.

The French firm said the two were complementary geographically, adding Bombardier’s European footprint was stronger in northern countries and the Canadian firm would add expertise in monorail trains as well as rail services.

“We don’t see it as a huge issue,” Alstom Chief Executive Henri Poupart-Lafarge said of regulatory hurdles on a conference call. “If there are some issues, they will be much easier to solve than the one we had with Siemens.”

A combination with Bombardier would give Alstom a share of between 40% and 60% of the European regional train market, according to estimates cited by union sources in France, well above Siemens at 10% to 20%.

The deal with Bombardier is Alstom’s latest quest to scale up after its attempts to merge with Germany’s Siemens AG by European regulators was quashed by European regulators who said the deal could penalize consumers.

Reuters however reports that some analysts have said there could be less opposition to a deal this time as Alstom and Bombardier have a lower combined European market share in high-speed rail and signaling.

The French government, which had criticized the EU’s veto on the Siemens merger, welcomed the transaction.

“This deal will allow Alstom to prepare for the future, against the backdrop of increasingly intense international competition,” Finance Minister Bruno Le Maire said.

Bombardier and Alstom said they expected the deal -which includes a 75 million-euro break fee- to close in the first half of 2021.

Train makers are eyeing consolidation to reduce costs and improve thin rolling stock margins, and Alstom said it also wanted to make the most of a boom in rail travel as consumers switch from planes for environmental reasons.

According to Alstom, the merged group would be able to reach annual cost savings of 400 million euros from the fourth year.

Under the deal, one of the Bombardier rail division’s shareholders, Canadian pension fund Caisse de depot et placement du Quebec, would become the lead investor in Alstom with an 18% stake.

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