Bombardier investors flinch at sale of train division to Alstom, stocks drop
Concerned about pure business jet play; higher margins but the luxury industry is more volatile than rail.
MONTREAL — Bombardier Inc.’s shares dropped almost 10 per cent Tuesday, one day after announcing the sale of its rail business to French train giant Alstom SA.
The deal would shrink the Montreal-based transportation company by more than half as it shifts focus solely to private business jets.
If approved by regulators, the US$8.2-billion transaction will help Bombardier slash its hefty debt by nearly three-quarters to about US$2.5 billion, capping a five-year turnaround plan that has seen the company shed numerous assets, including its commercial airplane division.
Analysts Seth Seifman and Yilma Abebe of J.P. Morgan cited concerns about how a “pure-play bizjet” stock would fare.
“Currently, we think the equity market perceives bizjets as facing structural challenges and as unappealing from a growth perspective,” they said in a research note.
While private jets often yield higher margins, the luxury industry is more volatile than rail, where companies can tap into massive government infrastructure contracts.
“We view the business jet segment as more cyclical and overall industry business jet deliveries have been relatively stagnant over the past 10 years,” said National Bank of Canada analyst Cameron Doerksen.
Nonetheless, he sees Bombardier as “well-positioned,” with annual revenue of US$7 billion and a backlog of US$14.4 billion.
Bombardier shares fell as much as 13% in afternoon trading before closing at $1.49, down 16 cents or 9.7% on the Toronto Stock Exchange. The exchange was closed Monday for Family Day.
The acquisition by Alstom – whose stock dropped more than three per cent Feb. 18 – is expected to come under intense scrutiny from antitrust regulators in the European Union.
Last year, EU authorities blocked a proposed merger between Alstom and the train division of German industrial conglomerate Siemens AG, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.
Bombardier said its net proceeds from the sale will be US$4.2 billion to US$4.5 billion, after adjusting for liabilities including pension obligations and paying the Caisse de depot et placement du Quebec for its 32.5% stake in the train division, known as Bombardier Transportation. The proceeds include US$550 million worth of Alstom shares.
The deal makes the Caisse Alstom’s single largest shareholder, converting the Quebec pension giant’s investment in Bombardier Transportation into Alstom shares worth up to $3 billion, on top of an additional Caisse investment of $1 billion to hand it an 18% stake in the Paris-based company.
The deal is expected to close in the first half of 2021 if it can overcome regulatory hurdles.
Quebec Premier Francois Legault warned that Alstom could be subject to large lawsuits if it does not meet its commitments to the province following the acquisition of Bombardier Transportation.
The French giant has committed to establish in Montreal its North American headquarters, which will supervise 13,000 employees. It will also set up a research centre and improve production at the La Pocatiere plant, where about 400 Bombardier Transportation employees work, and Sorel-Tracy, where Alstom has 90 workers.
“These are commitments that are in writing and that are not limited in time,” said Charles Emond, the new CEO of the Quebec pension fund manager. “It is not linked in time or to our (Alstom shareholding threshold). It’s permanent.”