Bombardier Inc. has sold its rail-building unit to French train giant Alstom SA, marking its exit from the rail business.
On Monday, Alstom announced it had secured a deal with Bombardier and major shareholder Caisse de dépôt et placement du Québec to acquire Bombardier Transportation for a price of 5.8 to 6.2 billion euros ($8.4-$9 billion Cdn) in stock and cash.
“I’m very proud to announce the acquisition of Bombardier Transportation, which is a unique opportunity to strengthen our global position on the booming mobility market,” Henri Poupart-Lafarge, chairman and CEO of Alstom, said in a news release.
Alstom gains a bigger footprint in the North American market, as well as eastern Europe and Mexico, and hopes to fend off rivals such as China’s state-owned CRRC, the world’s largest train maker.
Poupart-Lafarge pledged a “turnaround” at Bombardier Transportation that would deliver value to customers and further develop its operations in Quebec. Caisse remains a major shareholder, having negotiated a cash and share swap that will see it take a stake of about 18 per cent in Alstom.
He mentioned the $46 billion in orders still on Bombardier Transportation’s books, and said Alstom plans to work on fulfilling those orders.
The deal requires approval by the EU, which last year blocked a proposed merger between Alstom and the train division of German industrial conglomerate Siemens AG, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.
Headquarters of Americas in Montreal
After the deal goes through, Alstom proposes to establish a headquarters of the Americas in Montreal to lead all Alstom operations and expansion in the region.
It also pledges a centre of excellence for design and engineering, as well as high-tech R&D activities, which will be focused on developing sustainable mobility solutions.
With demand for high-efficiency, low-carbon transit from cities set to grow, Alstom is predicting the market for rail and rail systems will expand three to five per cent annually until 2025.
Montreal-based Bombardier has sold several divisions since CEO Alain Bellemare took the helm in 2015, including its turboprop and aerostructure segments, as well as its commercial airline unit, once touted as the company’s crown jewel.
Bombardier announced last month it was working to reduce debt and pursuing strategic options, which analysts and other observers suggested could include the sale of the company’s rail or business jet units.
Bombardier announced the sale of its remaining stake in the A220 commercial jetliner program as it reported quarterly results last Thursday, marking the end of its failed bid to take on the commercial aircraft duopoly of Airbus SE and Boeing Co.
That agreement with Airbus and the Quebec government hands Airbus a 75 per cent share in the A220 partnership, up from just over 50 per cent, while Quebec’s stake rises at no extra cost to 25 per cent, from 16 per cent.
In exchange, Airbus pays Bombardier $591 million US for the rest of its slice of a plane franchise that cost it more than $6 billion to develop.
The niche plane program — formerly called the C Series — faced constant delays and cost overruns and lacked the marketing might of its two massive competitors, despite a $1-billion investment from Quebec in 2016 and a $372.5-million loan from Ottawa the following year.
The company sold its water-bomber unit, Q400 turboprop business, CRJ regional jet program and flight-training enterprise over the past four years, among other appendages.
The company has ramped up production of high-margin business jets, which it expects will drive double-digit revenue growth with 160 unit sales in 2020 amid a $16.3-billion backlog. That is its only remaining earning unit.
Bombardier has debt estimated at $9.3 billion US.