Alstom to acquire Bombardier Transportation

Alstom is set to acquire Bombardier Transportation after signing a Memorandum of Understanding with Bombardier Inc., and Caisse de depot et placement du Quebec (CDPQ). Bombardier announced its decision to focus exclusively on business aviation and plans to accelerate its deleveraging through the sale of its rail business. "Today marks an exciting new chapter for Bombardier.

Going forward, we will focus all our capital, energy and resources on accelerating growth and driving margin expansion in our market-leading £7 billion business aircraft franchise," said Alain Bellemare, president and CEO, Bombardier Inc. "With a stronger balance sheet after the completion of this transaction, an industry-leading portfolio of products, a strong backlog, and a rapidly growing aftermarket business, we will compete in this market from a position of strength." Post-transaction, Alstom will have a backlog of around EUR75 billion (US£81.122 billion) and revenues around EUR15.5 billion (US£16.787 billion). The price for the acquisition of 100 percent of Bombardier Transportation shares will be EUR5.8 billion (US£6.281 billion) to EUR6.2 billion (US£6.712 billion), which will be paid via a mix of cash and new Alstom shares.

CDPQ says it will reinvest EUR2 billion (US£2.165 billion) corresponding to 100 percent of cash proceeds to be received from the sale of its stake in Bombardier Transportation and further invest EUR0.7 billion (US£757.925 million) in Alstom. After deducting CDPQ's equity position between £2.1 billion and £2.3 billion, Bombardier would receive net proceeds of between £4.2 to £4.5 billion, including £550 million of Alstom shares for a fixed subscription price of EUR47.50 (US£51.38), monetizable after a three-month lock-up post-closing, subject to closing adjustments, indemnities and the EUR to USD exchange rate. Bombardier intends to direct these proceeds towards debt paydown and will evaluate the most efficient debt reduction strategies.

"Selling the rail business will allow us to reshape and redefine our capital structure. Adding a substantial amount of cash to the balance sheet, and removing la Caisse preferred equity in Transportation, will change the game for Bombardier," continued Bellemare. "Including expected proceeds from previously announced transactions, Bombardier would have between £6.5 and £7.0 billion of pro forma cash on hand, putting the company on a brand-new footing to address its £9.3 billion of debt."  Bellemare added, "We are confident that the sale of our rail business to Alstom is the right action for all stakeholders.

As a company, their mission to provide the world's most efficient mobility solutions, their commitment to technology and their focus on sustainability will serve our customers well. They also appreciate and value our technology and capabilities. Above all, they recognize our talented and passionate employees and the great work they have done."

A step-change acquisition

Alstom and Bombardier operate in a positive market environment with passenger traffic expected to grow between three percent to five percent annually over the 2015-2025 period and the global rail OEM market is expected to achieve a +3 percent compound annual growth rate (CAGR) between 2021-2023, according to Alstom.

Post-transaction, Alstom says it will benefit from additional technologies and added research and development resources to consolidate its leadership in sustainable mobility. The group will also further develop its presence in Quebec, Canada. After the transaction, Montreal will welcome the headquarters for Alstom of the Americas, leading all Alstom operations and expansion in these geographies.

In addition, Alstom will establish a center of excellence for design and engineering, as well as high-tech research and development activities, which will notably be focused on developing sustainable mobility solutions. "I'm very proud to announce the acquisition of Bombardier Transportation, which is a unique opportunity to strengthen our global position on the booming mobility market. This acquisition will improve our global reach and our ability to respond to the ever-increasing need for sustainable mobility.

Bombardier Transportation will bring to Alstom complementary geographical presence and industrial footprint in growing markets, as well as additional technological platforms," said Henri Poupart-Lafarge, chairman and CEO of Alstom. "It will significantly increase our innovation capabilities to lead smart and green innovation. We will be thrilled to welcome all the talent and energy of Bombardier Transportation employees. We are deeply committed to step up the turnaround of Bombardier Transportation activities and deliver significant value to all stakeholders, particularly our customers.

We will also further develop Bombardier Transportation's historical presence in Quebec, drawing on Quebec's well-established strengths in innovation and sustainable mobility. We are pleased to welcome CDPQ as a new long-term shareholder. CDPQ is fully supportive of the transaction and Alstom's strategy."

A unique opportunity to accelerate Alstom's strategic roadmap, Alstom in Motion

The acquisition of Bombardier Transportation comes after Alstom says it has strengthened its operational and financial profile during the past four years to accelerate its strategic roadmap and adding to Alstom complementary commercial and industrial platforms.

Bombardier Transportation will bring to Alstom: Complementary geographical presence to broaden Alstom's commercial reach in key growing markets leveraging on Bombardier's successful historical track record in Germany, the United Kingdom, North America and its presence in China. Attractive rolling stock additions to Alstom's portfolio, establishing a comprehensive offering across all rail segments to better address customers' needs for fit-for-purpose mobility solutions with selective niches such as Monorail, People Mover and bringing strong expertise recognition through the development of local specific solutions to blue-chip clients.

Significant assets for Alstom services business with access to a large installed train fleet and a wide maintenance facilities network in a high value segment and opening new opportunities with a strengthened market coverage and service offering. Complementary and strategic new geographies in signaling, enabling Alstom to accelerate the roll-out of its solutions leveraging on new market access and highly qualified employees consolidating Alstom capabilities in a strategic segment. Complete innovation portfolio and significant engineering and research and development resources to lead smart and green mobility innovations.

Best cost industrial footprint including in Eastern Europe, Mexico and China, and a complementary footprint in mature markets like in Germany and UK.

A value-creating transaction for all stakeholders

Alstom says it is committed to recover Bombardier Transportation's full operational and profitability potential with the objective of restoring project execution and margin towards standard level. This will be achieved thanks to clearly identified levers including: Focus on operation turnaround and backlog execution based on Alstom best practices systematic roll-out.

Structured action plan to ensure successful integration and deployment of Alstom best practices and technologies globally. Alstom's financial discipline and successful track record in profitability step-up. The strong cultural fit and understanding of Bombardier Transportation developed during numerous co-led projects.

In addition, tangible and executable synergies have been identified and Alstom plans to deliver EUR400 million run rate cost synergies in year four to five. Customers will also benefit from the expertise and the broad portfolio of this larger entity.

CDPQ becoming a new long-term shareholder of Alstom

As part of Alstom's proposed acquisition of Bombardier Transportation, CDPQ will convert its current investment in Bombardier Transportation into shares of Alstom. CDPQ also announced an additional investment of EUR700 million (US£757.862 million) in Alstom.

CDPQ's total investment will range from EUR2.63 billion (US£2.847 billion) to EUR2.78 billion (US£3.009 billion), depending on closing conditions. Alstom shares will be acquired by CDPQ at EUR44.45 per share (US£48.12 per share). With this transaction, CDPQ will become the largest shareholder of the new Alstom, with a stake of around 18 percent in the company, depending on financing and closing conditions.

As such, CDPQ will appoint two representatives to sit on Alstom's Board of Directors, as well as a board observer. The transaction is the result of a thorough analysis and discussions that started several months ago, according to CDPQ. "The combination of Bombardier Transportation and Alstom, which is recognized for its capacity to manage and execute projects, strengthens the company's global leadership in sustainable mobility," said Charles Emond, president and CEO, CDPQ. "It's an investment in a company that is well positioned to harness the growth of a promising sector - which is perfectly aligned with our strategy and will produce attractive returns for our depositors over the long term."

The value of CDPQ's holdings in Bombardier Transportation, which will be converted into shares of Alstom, reflects the 15 percent annual return set out in the initial investment structure. HSBC acted as financial advisor, and McCarthy Tetrault LLP and Freshfields Bruckhaus Deringer LLP acted as legal advisors to CDPQ in this transaction. Bouygues will remain a shareholder of Alstom with around 10 percent of capital.

It is fully supportive of the transaction and undertook to vote in favor of the transaction-related resolutions at the extraordinary general meeting (EGM), according to Alstom. For existing Alstom shareholders, Alstom says the transaction is expected to deliver significant value and shareholders will be offered the possibility to accompany Alstom in the financing of this strategic acquisition through a rights issue, subject to EGM approval.

Indicative timetable and next steps

The signing of the Memorandum of Understanding has been unanimously approved by each of Alstom's and Bombardier Inc.'s board of directors and the envisaged transaction is fully supported by CDPQ. The Memorandum of Understanding organizes the information and consultation process by Alstom and Bombardier of their respective Works Councils and contains exclusive commitments by both parties.

An EGM voting on the reserved capital increases and the rights issue should take place no later than Oct.

31, 2020. Bouygues undertook to vote in favor of the transaction-related resolutions at this EGM. Subject to the EGM, rights issue will take place between H2 2020 and H1 2021 and the reserved capital increases will take place at closing.

The transaction will also be subject to clearance from relevant regulatory authorities and anti-trust authorities.

Closing is expected in the first half of 2021.

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