Bombardier strikes firm deal to sell rail business at lower price

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French train giant Alstom SA has won better terms in its multi-billion dollar takeover of Bombardier Inc.’s train business but the deal is moving forward.

Bombardier announced Wednesday that it signed a definitive agreement for the sale of its rail unit with Alstom following a memorandum of understanding between the two companies earlier this year.

The price being paid however, is 7.15-billion euros (US$8.4-billion) including debt, a downward adjustment of 300-million euros (US$350-million) from the original terms of the deal, Bombardier said. The lower price is offset to some extent by a more favourable exchange rate between European and U.S. currencies, the company said.

“Today’s announcement marks a significant milestone towards achieving our near-term priorities and repositioning Bombardier,” Bombardier Chief Execuive Éric Martel said in a statement. “The proceeds from this transaction will allow us to begin reshaping our capital structure and start addressing our balance sheet through debt paydown.”

The sale amounts to a crucial transaction for Bombardier, which intends to use the proceeds to de-lever and emerge as a pure-play manufacturer of private business jets. Bombardier shares climbed 7 per cent to $0.44 in Toronto trading Wednesday morning.

The company now expects net proceeds of about US$4-billion from the sale, down from a range of US$4.2-billion to US$4.5-billion previously. That amount includes 500-million euros (US$585-million) in Alstom stock.

Alstom SA signalled last month that it might push for a lower price after the Canadian manufacturer reported a second-quarter loss pinned on a major writedown at the rail unit. Bombardier’s quarterly report “points to unexpected and negative developments” in its train business, especially compared with the information available before the announcement of the takeover in February, Paris-based Alstom had said.

Alstom had said it still remains convinced of the strong strategic rationale for the takeover and that it is confident it can bring the Bombardier unit back to profitability in the medium term. But the company had said it would “take into account the consequences” of these developments.

The companies have received approval for the takeover from regulators in Europe, where the two rail business are based. They still have to win clearance from regulators in a few other countries, including Canada, the United States and China, and backing from Alstom shareholders in a vote expected in October.

Bombardier is one of the world’s largest makers of rail equipment and continues to win new orders to strengthen a US$33.7-billion backlog. But the business has been hamstrung in recent years by problems on several technically complex contracts, including deals with Germany’s Deutsche Bahn and London Overground, that have resulted in delivery delays and financial penalties from customers.

Montreal-based Bombardier took a charge of US$435-million on the train business in its latest quarter, which contributed to a net loss of US$223-million, or 13 cents per share.

The charge was related to what the company called “incremental engineering, certification and retrofit costs” on several nearly complete projects, mainly in Britain and Germany. The company also said it mandated a new team to conduct “deep dives into challenging legacy projects” to examine the excessive costs.

Canadian pension fund Caisse de dépôt et placement du Québec, which holds about 30 per cent of Bombardier Transportation, will convert its position into shares of Alstom under the planned takeover. Caisse will become Alstom’s largest shareholder, with about 18 per cent of the company.

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SOURCE: https://www.w24news.com

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