French train manufacturing company, Alstom SA (Alstom) confirmed on Monday, February 17, 2020, that it has held talks on a potential $7 billion buyout deal of the Canadian rail transport company, Bombardier Inc. (Bombardier).
Alstom, the maker of the TGV bullet trains which has its services between French cities such as Paris and Nice, aimed at building up the scale of its operations to compete with the world’s largest train maker, China’s CRRC Corp Ltd.
Alstom’s Deal with Bombardier
A source told Reuters on Sunday about the possibility of the acquisition deal between the train manufacturing companies through combining their equity and paying off debts. Alstom said in a statement on Monday, “Alstom confirms being in discussions with Bombardier regarding a possible acquisition of Bombardier Transportation … No final decision has been made.”
Following the news, Alstom shares gained up 1.9% by 0855 GMT. Through this deal, the train manufacturing companies expected to reduce the rising costs and expand their scale of operations to stay competitive against the fierce competition from Chinese leading trade manufacturing company, CRRC.
Last year, the European regulators stopped a merger agreement between the French company, Alstom and Germany’s conglomerate company, Siemens AG. The intervention of the European regulators on the merger deal of Alstom-Siemens was because the regulators believed that such a deal could have hurt competition and led to higher prices for consumers despite concessions made by the companies.
Some analysts explained that Alstom’s acquisition move of Bombardier Transportation would invite antitrust scrutiny as the one that happened in the last year with Siemens.
Less Resistance likely from the EU Regulators
Bombardier has been facing hardship as its businesses were hit hard in the 2015 cash crunch when the company introduced its new plane to market. According to Refinitiv data, the Canadian group has $9.7 billion in outstanding bonds and is looking for liquidation to pay off its financial debts.
Moreover, Bombardier has been struggling to contain higher rail expenditure that arose from several failed contracts which led to nearly $36 billion order backlog. Last week, the company announced a deal would to sell off its stake in the A220 passenger jet programs to Airbus and the Quebec government.
Considering the existing situation of the Canadian company, some analysts have claimed that the deal between Alstom and Bombardier would be facing less resistance from the European regulator since the combined of the two companies still showed a lower market share in high-speed rail and signaling in the European market. This potential agreement with Bombardier would make around $17 billion in combined revenues.
A source said that the French government, which earlier criticized the EU’s veto on the Siemens merger, is hoping for less interference from the EU regulator on the latest deal. Deutsche Bank analysts said in a statement, a takeover of Bombardier’s rail division would help Alstom’s earnings per share by around 17 percent in coming days
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