Alstom announces on 17 Feb 2020 it has signed a Memorandum of Understanding with Bombardier Inc. and Caisse de dépôt et placement du Québec (“CDPQ”) in view of the acquisition of Bombardier Transportation. Post-transaction, Alstom will have a backlog of around €75bn and revenues around €15.5bn. The price for the acquisition of 100% of Bombardier Transportation shares will be €5.8bn to €6.2bn which will be paid via a mix of cash and new Alstom shares. CDPQ will reinvest c.€2bn corresponding to 100% of cash proceeds to be received from the sale of its stake in Bombardier Transportation and further invest €0.7bn in Alstom, outlining its strong belief in the strategic rationale and value creation potential of the combination.
“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. This acquisition will improve our global reach and our ability to respond to the ever-increasing need for sustainable mobility. Bombardier Transportation will bring to Alstom complementary geographical presence and industrial footprint in growing markets, as well as additional technological platforms. It will significantly increase our innovation capabilities to lead smart and green innovation. We will be thrilled to welcome all the talent and energy of Bombardier Transportation employees. We are deeply committed to step up the turnaround of Bombardier Transportation activities and deliver significant value to all stakeholders, particularly our customers. We will also further develop Bombardier Transportation’s historical presence in Québec, drawing on Québec’s well-established strengths in innovation and sustainable mobility. We are pleased to welcome CDPQ as a new long-term shareholder. CDPQ is fully supportive of the transaction and Alstom’s strategy.” said Henri Poupart-Lafarge, Chairman and CEO of Alstom.
A step-change acquisition
Alstom and Bombardier operate in a very positive market environment with passenger traffic expected to grow between 3% to 5% annually over the 2015-2025 period and global rail OEM market expected to achieve a +3.0% CAGR between 2021-2023. The dynamic is driven by urbanisation trend and a strong push for decarbonation of mobility. In Europe, the European Commission has set very ambitious targets in terms of CO2 reduction and several countries have announced large investments in rail.
Alstom is a preeminent rail equipment player with an industry-record backlog of €40bn and €8.1bn of annual sales as of 31-Mar-2019. Over the period 2016-2019, Alstom delivered strong sales development with an average annual growth of 5.5% outperforming the market, and significantly improved profitability (up to 7.5% adjusted EBIT margin).
Bombardier Transportation is a reference player in global rail transportation with a €32bn backlog and €7.4bn sales as of December 2019. With a track record of market leadership and a strong expertise, Bombardier Transportation offers a broad product portfolio across all market segments and has a well-balanced industrial footprint between best-cost and high-tech countries.
Post-transaction, Alstom will benefit from significant additional technologies and added R&D resources to consolidate its innovation leadership in sustainable mobility.
The group will also further develop its presence in Québec, Canada. After the transaction, Montréal will welcome the Headquarters of Alstom of the Americas, leading all Alstom operations and expansion in these geographies. In addition, drawing on Québec’s well-established strengths in innovation and sustainable mobility, Alstom will establish a centre of excellence for design and engineering, as well as high-tech R&D activities, which will notably be focused on developing sustainable mobility solutions.
A unique opportunity to accelerate Alstom’s strategic roadmap, Alstom in Motion
The acquisition of Bombardier Transportation is a one-time opportunity coming at the right moment for Alstom, having significantly strengthened its operational and financial profile over the past 4 years to accelerate its strategic roadmap, and adding to Alstom complementary commercial and industrial platforms. Bombardier Transportation will notably bring to Alstom:
- complementary geographical presence to broaden Alstom’s commercial reach in key growing markets leveraging on Bombardier’s successful historical track record in Germany, UK, North America and its unique presence in China
- attractive rolling stock additions to Alstom’s portfolio establishing a comprehensive offering across all rail segments to better address customers’ needs for fit-for-purpose mobility solutions, notably with selective niches such as Monorail, People Mover and bringing strong expertise recognition through the development of local specific solutions to blue-chip clients
- significant assets for Alstom services business with access to the largest installed train fleet worldwide and a wide maintenance facilities network in a high value segment and opening new opportunities with a strengthened market coverage and service offering
- complementary and strategic new geographies in signalling enabling Alstom to accelerate the roll-out of its solutions leveraging on new market access and highly qualified employees consolidating Alstom capabilities in a strategic segment
- complete innovation portfolio and significant engineering and R&D resources to lead smart and green mobility innovations
- best cost industrial footprint including in Eastern Europe, Mexico and China and complementary footprint in mature markets e.g. Germany & UK
A value-creating transaction for all stakeholders
Alstom is committed to recover Bombardier Transportation’s full operational and profitability potential with the objective of restoring project execution and margin towards standard level. This will be achieved thanks to clearly identified levers including:
- focus on operation turnaround and backlog execution based on Alstom best practices systematic roll-out
- structured action plan to ensure successful integration and deployment of Alstom best practices and technologies globally
- Alstom’s financial discipline and successful track record in profitability step-up
- the strong cultural fit and understanding of Bombardier Transportation developed during numerous co-led projects
In addition, tangible and executable synergies have been identified and Alstom plans to deliver €400m run rate cost synergies in year 4 to 5.
As a result of greater efficiency and of a more robust operational profile, the transaction is expected to be double-digit EPS accretive from year 2 post closing for Alstom shareholders.
Customers will also benefit from the extensive expertise and the broad portfolio of this larger entity.
CDPQ becoming a new long-term shareholder of Alstom
Pursuant to the terms of the acquisition, CDPQ (currently holding 32.5% of Bombardier Transportation), will become the largest shareholder of Alstom with approximately 18% of capital. CDPQ is a highly regarded strategic investor with a long-term investment approach and has a significant and successful track record in the rail industry. It is fully supportive of the transaction and Alstom’s strategy. CDPQ will reinvest its proceeds for c.€2.0bn and realize an additional investment of €0.7bn in Alstom.
Bouygues will remain an important shareholder of Alstom with around 10% of capital. It is fully supportive of the transaction and undertook to vote in favor of the transaction-related resolutions at the EGM.
For existing Alstom shareholders, the transaction is expected to deliver significant value and they will be offered the possibility to accompany Alstom in the financing of this strategic acquisition through a rights issue, subject to EGM approval.
Indicative timetable and next steps
The signing of the Memorandum of Understanding has been unanimously approved by each of Alstom’s and Bombardier Inc.’s board of directors and the envisaged transaction is fully supported by CDPQ.
The Memorandum of Understanding organises the information and consultation process by Alstom and Bombardier of their respective Works Councils and contains exclusive commitments by both parties.
An extraordinary general meeting (EGM) voting on the reserved capital increases and the rights issue should take place no later than October 31, 2020. Bouygues undertook to vote in favour of the transaction-related resolutions at this EGM.
Subject to the EGM, rights issue will take place between H2 2020 and H1 2021 and the reserved capital increases will take place at closing.
The transaction will also be subject to clearance from relevant regulatory authorities and anti-trust authorities. Closing is expected in the first half of 2021.