French train maker Alstom has confirmed it is in talks to acquire the rail business of embattled Canadian train and plane maker Bombardier, in a fresh attempt to bulk up against Chinese competition.
Discussions are ongoing and no final decision has been made, Alstom and Bombardier said Monday in separate statements, without providing further details. The business could fetch about $7-billion, according to a person familiar with the matter.
A purchase would make Alstom the clear No. 2 in rail equipment and help it counter the industry leader, China’s CRRC Corp., which is increasingly targeting global sales. The Franco-Canadian deal would come after a merger between Alstom and Germany’s Siemens AG was blocked last year by the European Union on antitrust considerations.
Alstom shares advanced 2.1% to €49.60 as of 9:42 a.m. in Paris. The company has a market value of €11.1-billion, after rising 32% in the past year.
Bloomberg News reported last week that talks were at an advanced stage, following its initial January 21 report on the discussions. Dow Jones said over the weekend that an outline was in place for a deal with a price of more than $7-billion.
Bombardier has been offloading assets to pay down debt following a costly expansion of its commercial aviation business. The embattled Canadian transportation firm shocked the market last month by warning of disappointing fourth-quarter sales. Bombardier announced Thursday it will exit a venture with Airbus that builds the A220 jetliner to preserve cash.
A planned combination of Alstom and Bombardier’s Berlin-based rail division would face close antitrust scrutiny, having a near 50% share of the market for electric multiple units and a leading position in Europe’s urban transport market, according to analysis by German consultancy SCI Verkehr.
Alstom and Bombardier have discussed potential remedies to address antitrust concerns, people familiar with the matter have said.
A takeover of Bombardier’s rail business by Alstom would mark the latest attempt by some of the world’s biggest trainmakers to counter growing competition from China. Bombardier in 2017 held talks to combine its rail operations with competitor Siemens until the German company suddenly opted to pursue a deal with Alstom, which ultimately failed.
In February 2019, the European Union blocked the planned Franco-German merger, which the companies said would have created a European rail champion. Regulators refused to cave in to warnings by executives and politicians from both France and Germany about the looming threat of Chinese competition.
Bombardier in 2015 sold a 30% stake in its Berlin-based train business to pension fund Caisse de Depot et Placement du Quebec, valuing the unit at $5-billion at the time and helping the firm raise capital as it faced a cash drain from delays for its new jets.