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After decades of building one of the world’s largest aerospace and train businesses, Montreal’s Bombardier Inc. will shrink by half after formally announcing the sale of its rail division to France’s Alstom SA.
The wholesale retreat from building everything from high-speed trains in China to streetcars for Toronto means that Bombardier will exist only as a maker of private business jets. But Bombardier Transportation (BT), as the train division is known, isn’t giving up all of its Canadian roots: The Caisse de dépôt et placement du Québec (CDPQ), which owns 32.5 per cent of BT, has agreed to become a significant shareholder in the enlarged Alstom.
Alstom, whose headquarters are in Paris, and Bombardier, announced the train merger late on Monday, though the deal was widely expected — Bombardier had confirmed that it was in talks to sell either its train or business jets division. The Canadian company confirmed that its business jets unit is no longer for sale.
Alstom put the price of buying 100 per cent of the train business, known as Bombardier Transportation (BT), at 5.8-billion to 6.2-billion euros, to be paid through a mix of cash and new Alstom shares. CDPQ will sell its stake in BT for about 2-billion euros and invest the proceeds, plus an additional 700-million euros, for an 18 per cent stake in the new Alstom, making it the French company’s single largest shareholder.
Bombardier CEO Alain Bellemare said the BT sale will completely transform the highly indebted company’s capital structure, giving it the financial flexibility to expand and improve the profitability of the business jets division, which faces enormous development costs as competition with big-name rivals, such as Textron and Gulfstream Aerospace, heats up. In a statement, he said the BT sale “will change the game for Bombardier.”
Bombardier said that total proceeds from the BT sale, after adjusting for certain liabilities, such as pension obligations, would be about US$6.4-billion. After deducting the CDPQ’s equity position in BT, Bombardier would end up with US$4.2-billion to US$4.5-billion in net proceeds, equivalent to about half of Bombardier’s overall debt of US$9.3-billion.
The BT sale, along with the commercial jet sales that had already been announced, will hand Bombardier between US$6.5-billion and US$7-billion in cash, “putting the company on a brand new footing” to address its hefty debt burden, Mr. Bellemare said. Bombardier said it expects its net debt to be US$2.5-billion if the transaction is completed.
Bombardier unloaded the last of its once-vast commercial aircraft business earlier this month, with an agreement to sell its remaining interest in the Airbus A220 passenger jet – the aerospace project once known as the C Series that nearly bankrupted the company – to Airbus.
Alstom, for its part, called the BT purchase a “step-change” acquisition. Alstom had been trying some time to bulk itself up, 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.
But its attempt to merge the train business of rival Siemens of Germany failed last year, when the European Union’s competition regulator, Margrethe Vestager, said the deal would make Alstom-Siemens overly dominant in high-speed trains and signaling.
In an analysts’ call on Monday, Alstom Chairman and CEO Henri Poupart-Lafarge, 50, said he expected an easier ride with European regulators this time around. “Bombardier is a relatively small player in Europe in signalling,” he said. “It will be a much simpler project than the one we had with Siemens.”
The French government threw its support behind the Alstom-BT merger. “This deal will allow Alstom to prepare for the future, against the backdrop of increasingly intense international competition,” Finance Minister Bruno Le Maire said in a statement.
If the deal is completed, the new Alstom will have an order backlog of 75-billion euros and annual revenues of 15.5-billion euros, a near doubling of its current revenues. With BT at its side, Alstom will be a big player in virtually every train-product market. Alstom said it was particularly attracted to BT’s “unique” presence in China, where it has developed high-speed trains, and strong presence in Germany and North America.
Alstom said it will open an office in Montreal, which will become the new headquarter for Alstom of the Americas.
More to come …
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