PARIS/MONTREAL — Alstom’s board will meet late on Wednesday to discuss buying Bombardier’s rail unit, sources familiar with the matter said, and a media report said the French train maker had valued the business at just under US$7 billion.
French TV station BFM reported on its website that Alstom was set to make a firm offer for Bombardier’s Berlin-based rail division.
Three industry sources familiar with the talks said a deal would involve Alstom acquiring Bombardier’s largest unit in terms of revenue, but cautioned an agreement was not finalized.
Bombardier shares were up almost 8 per cent in afternoon trading.
Alstom and Bombardier declined to comment.
A deal would help Montreal-based Bombardier improve its financial footing. The company, which will report its results on Thursday, faces higher-than-expected-costs in its rail division and US$9.7 billion in outstanding debt, according to Refinitiv data.
An acquisition would help Alstom compete more effectively against Chinese giant CRRC Corp and in the U.S. market, a fourth industry source said.
Desjardins analyst Benoit Poirier said in a note to clients that a US$7 billion offer seemed high “considering recent operational challenges” in the rail unit.
A planned tie-up between Alstom and Germany’s Siemens AG collapsed last year due to European regulatory concerns.
“After the failure of the Alstom-Siemens merger, (a deal) would be a good strategic rebound for Alstom,” said a fourth source who was familiar with the French government’s thinking.
Bombardier’s rail assets are heavy in lower-margin rolling stock which are less attractive for Alstom, the source noted, but the deal would still offer synergies.
Alstom had recently made a non-binding offer valuing the business at US$7 billion and a new offer would be binding but worth less, BFM said.
Alstom would offer cash for Bombardier’s 70 per cent stake of its railway business and Alstom shares for the 30 per cent held by Canadian pension fund manager Caisse de dépôt et placement du Québec, the report added.
Poirier of Desjardins said he assumed a value of US$2.5 billion net of Caisse’s stake in the division, but excluding “pension liabilities which could be significant.”
Caisse, which acquired the stake for US$1.5 billion in 2016, declined comment.
One of the industry sources told Reuters that several options were on the table, including Alstom raising capital and the Caisse becoming one of the French company’s main shareholders with Bouygues, a French conglomerate that owns a 15 per cent stake in Alstom.
Bombardier is also weighing a sale of either its business jet or rail division.
The company is leaning toward selling rail because it would resolve the need to buy back the Caisse’s share at a high cost, the second industry source said.
Under their agreement, Bombardier could buy back Caisse’s convertible shares at either the fair market value of its stake, or at a minimum 15 per cent compounded annual return, whichever is higher.
Reuters reported last month that Bombardier had approached Alstom and Japan’s Hitachi to find a merger partner for its rail business.
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