Alstom Signals Bombardier Rail Arm Losses to Affect Takeover
(Bloomberg) -- Alstom SA hinted that it may seek better terms for its 6.2 billion-euro ($7.3 billion) purchase of Bombardier Inc.’s train arm after the Canadian company reported a second-quarter loss on writedowns at the unit.
The earnings announcement on Aug. 6 turned up unexpected financial and operational performance issues, especially when compared with information available prior to the February takeover deal, Alstom said in a statement Monday.
The French company said the transaction still makes sense, though it will take the developments into account in talks with Bombardier and update the market if needed.
Alstom would almost double its size with the cash-and-stock purchase of Bombardier’s rail unit. The deal received European Commission approval at the end of July. Before that, Alstom Chief Executive Officer Henri Poupart-Lafarge told French lawmakers it was “on a good path.”
Alstom, which is based in Saint-Ouen, France, said it remains convinced of “the strong strategic rationale” for the acquisition and is confident in its ability to restore the unit’s profitability and commercial performance in the medium term.
Bombardier was unchanged at 43 Canadian cents at 9:38 a.m. in Toronto, while Alstom fell 1.6% to 46.56 euros in Paris. Alstom gained 12% this year through Aug. 7, while Bombardier declined 78%.
Montreal-based Bombardier reported a loss after writing down legacy projects at the rail unit, and racking up coronavirus-related costs in both the rail and aviation businesses.
Bombardier blamed the $435 million in charges on engineering, certification and retrofit costs for late-stage projects, mainly in the U.K. and Germany. Over two-thirds of the charge is expected to hurt 2020 free cash flow.
Combining with Bombardier Transportation 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 deal would complete the breakup of Bombardier and leave the once sprawling firm focused on business jets after it was forced to offload assets to pay down debt. Regional jet, turboprop and jetliner businesses have already been offloaded.
Alstom’s bid to merge with the rail unit of Germany’s Siemens AG was blocked by the European Union on antitrust grounds, pushing it toward the deal with Bombardier.
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