Bombardier stocks drop as investors flinch at sale of train division to Alstom
Published Tuesday, February 18, 2020 1:04PM EST Last Updated Tuesday, February 18, 2020 4:11PM EST
Bombardier President and CEO Alain Bellemare attends the company's annual general meeting in Montreal on May 2, 2019. THE CANADIAN PRESS/Graham Hughes
MONTREAL -- Bombardier Inc. saw shares drop almost 10 per cent Tuesday 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 focuses solely on making 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 cyclical than rail, where companies can tap into massive government infrastructure contracts.
"Overall industry business jet deliveries have been relatively stagnant over the past 10 years," said National Bank of Canada analyst Cameron Doerksen.
Nonetheless, he views 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 per cent in afternoon trading before closing at $1.49, down 16 cents or 9.7 per cent 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 Tuesday -- 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 per cent 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 per cent stake in the Paris-based company.
The deal is expected to close in the first half of 2021 if it can overcome regulatory hurdles.
This report by The Canadian Press was first published Feb. 18, 2020.