French railway company Alstrom is set to acquire Bombardier's rail business, a deal that is expected to help in the company's efforts to fight against its growing competition from Chinese rivals.
Alstrom announced on Monday that it has already signed a contract to acquire Bombardier's railway unit. The company expects to pay between $6.3 billion and $6.7 billion to fully acquire the railway business.
In its official statement, Alstrom outlined that the deal will involve payments made via a mix of cash and shares. The company expected that the massive deal will increase its global reach and bolster its ability to meet growing demands in a number of markets, including Europe.
Bombardier also confirmed the reports stating that the move was a necessary one to make to reduce its debt burdens as it closes in on its five-year turnaround. The company also stated that letting go of its railway business should allow it to focus exclusively on its core aviation business moving forward.
The massive merger is Alstom's latest attempt to form a major European railway company that can match the size and scale of foreign firms such as the China Railway Rolling Stock Corporation (CRRC); currently the world's largest rail equipment supplier.
Last year, Alstom attempted to acquire the train equipment manufacturing business of its German rival Siemens. However, the deal was blocked by EU regulators over concerns that the merger would cause a surge in prices of specific train components and high-speed trains.
Industry experts have pointed out that Alstom and Bombardier's deal will likely also catch the attention of competition regulators. A merger between the two would mean that the merged company will take up close to 50 percent of the electric passenger train market share. Unions will also likely raise concerns over the possible closure of plants due to the merger.
Analysts expect the merged companies to become a global competitor and a "European Champion" for the European Union. The merger has been likened to Airbus' successful attempt to consolidate European aviation component manufacturers in the 1970s, a move that helped it compete against its US rival Boeing.
For Alstom, its key rival is China's state-owned company CRRC. In 2018, the Chinese firm reported revenues of close to $23 billion, significantly higher than the combined revenues generated by Alstom and Bombardier's railway unit of only $16.6 billion during the same year.
Last year, CRRC also secured a number of contracts in Europe, including newly secured contracts after it acquired the diesel locomotive business of Germany's Vossloh railway company. While CRRC's presence in Europe is still relatively small, its continued push into the continent will likely lead to it being a formidable contender in the sector.
