French train manufacturer Alstom SA has given the green light to acquire the rail division of Bombardier Inc. for around 6.3 billion euros ($6.7 billion), as the Canadian firm eases off its portfolio after a costly expansion in the aviation business.
The buyout, which will be paid for through a combination of stocks and cash will enhance Alstom's global reach and its capability to cope with the rising demand for "sustainable mobility," especially in the European region, a company statement disclosed.
The acquisition marks the latest attempt by Western rail makers to flex their muscle in the face of growing Chinese might. Alstom, the maker of the TGV bullet trains speeding between France's Paris and Nice, including several competitors, are trying scale up to match China's CRRC Corp, the world's biggest train manufacturer.
Alstom, headquartered in Saint-Ouen near Paris, will shell out as little as 5.8 billion euros, and is likely to add to earnings per share within two years and earn as much as 400 million euros in yearly savings for the company within five years.
Alstom and Bombardier, which seeks to cut down its debt load as it nears the end of a five-year restructuring, had earlier validated the talks after Wall Street Journal report. The Canadian company disclosed the deal would allow it to concentrate solely on its commercial flight ventures.
Shares of Alstom rallied nearly 4 percent late Monday as the two train companies eye a merger to trim down costs improve thin rolling share margins.
Bombardier Transportation is based in Berlin and has facilities globally, including at Derby in England, Mannheim in Germany and Crespin in France, just near an Alstom plant.
Consolidating with Bombardier would put Alstom in the second spot in the rail equipment competition and help the company go head to head with industry leader, China's CRRC Corp., which is aggressively aiming at global sales. The merger will be Alstom's second attempt to establish a European rail firm that can compete with the Chinese train giant.
A Bombardier-Alstom team-up could create a "European Champion" the region needs to compete in the global rail business, Maria Leenen, chief executive officer of SCI Verkehr, a strategy consultancy agency engaged in the railway and logistics industry, said.
The combination would create an estimated $17 billion in combined revenues for the two companies and would boost Alstom's earnings per share by approximately 18 percent, the Deutsche Bank calculations showed.
