It was the boss of Bombardier who approached that of Alstom to revive discussions between their groups. For the past few weeks, the two groups have been discussing an alliance as revealed by Bloomberg. According to our information, the proposed project consists in a sale of the railway activities from Bombardier to Alstom. “It is not a merger between equals, a source said, but a takeover by Alstom”. Concretely, Alstom would absorb the railway branch of Bombardier, which would allow the CEO, Henri Poupart-Lafarge, to keep the head of the new entity. When contacted, the group’s management declined to comment.
For the moment, many elements of the project are not fixed and still under discussion. Like the price of the Bombardier rail industry that Alstom is willing to pay. “It is worth about half of Alstom,” says a good connoisseur, about 5 billion. But the price will depend on the amount of Bombardier debt Alstom collects. “This is the subject of discussions, confirms a relative of Alstom. It all depends on the debt that Bombardier” will leave “in its railway branch”.
Quebec ready to acquire Alstom capital
Funding for the transaction is also at stake. Alstom would pay the transaction in part for cash needed by Bombardier to deleverage. The French group would also pay another party in Alstom shares to limit its check. According to several sources, the Caisse de depot et placement du Quebec (CDPQ), a 30% shareholder of Bombardier’s rail division, is ready to receive Alstom shares in exchange. CDPQ would thus become a shareholder of the French group at around 10%. A level comparable to what the Bouygues group would maintain, which would drop from 15% today to 10%. The good relations between the Bouygues families and Beaudoin, owner of Bombardier, should also facilitate an operation with Alstom rather than a competitor.
This is the third time in five years that the two groups have considered an alliance. But in 2015 and 2017, Alstom considered Bombardier’s financial requirements too high. Nothing will be decided “before a few weeks” ensures a close to Alstom. All the more so as to raise the stakes, Bombardier would also discuss with the German Siemens, the Japanese Hitachi or even with the Chinese giant CRRC. The Canadian should clarify his intentions when presenting his annual results on February 13.
Because Bombardier is in bad shape. In mid-January, he announced poor results and is studying all the strategic options for deleveraging. The Canadian is collapsing under $ 9 billion in debt, for a turnover of $ 18 billion. It multiplies the difficulties in its aeronautical branch. And its previously profitable rail division lost $ 230 million at the end of 2019.
Brussels more flexible than for Siemens
Beyond the financial aspect of a possible operation, the regulatory aspects remain major. A year ago, the European Commission had refused marriage between Alstom and Siemens. His veto seems less risky this time. The new president of the commission, Ursula von der Leyen, has promised to change the European doctrine on competition. Even the commissioner in charge of these matters, Margrethe Vestager, who opposed the alliance between Alstom and Siemens, agreed that these rules needed to be “updated”. “We are rather optimistic, estimates a close relation of Alstom. There is less problem than with Siemens”. This time, Brussels could even “help” Alstom. She might prefer Bombardier, which is very present in Europe, to marry Alstom rather than Siemens. The European objective is to keep two giants, Alstom and Siemens, rather than strengthening the German leader.
Finally, the last major pitfall: employment in France. Bombardier has a major factory in Crespin in the North, with 2,000 employees. When Alstom has 8,500 with mainly three large production plants in Belfort, La Rochelle and Reichshoffen. “The order books of the two companies are full so social issues will be managed,” said a close to Alstom. There is no doubt that the government will pay attention to this point. Economy Minister Bruno Le Maire said on BFM Business on Thursday that “there will be consolidation in the rail industry in the years to come.” A way of approving a new attempt at marriage by Alstom.
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