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  • Bombardier (TSX:BBD.B) sells its transportation division to French company Alstom
  • The deal is worth C$10.8 billion
  • Bombardier, Alstom and institutional investor Caisse de depot et placement du Quebec sign MOU
  • Bombardier will now focus on business aircraft deliveries and sales
  • BBD.B shares fell 1.2 per cent and traded at C$1.65 per share

French multinational Alstom is set to purchase Bombardier’s (TSX:BBD.B) transportation division.

Both companies and institutional investor Caisse de depot et placement du Quebec (CDPQ) have signed a memorandum of understanding to facilitate the transaction.

Under the deal, Bombardier and CDPQ will sell their stakes in Bombardier Transportation to Alstom, worth C$10.8 billion (US$8.2 billion).

The company and CDPQ will receive – after deducting debt-like items and transferred liabilities – about C$ 8.5 billion (US$6.4 billion).

Net proceeds to Bombardier will be about C$5.6 – 6 billion (US$4.2 – 4.5 billion) after subtracting CDPQ’s share of C$2.8 – 3 billion (US$2.1 – 2.3 billion). 

It will also be in possession C$728 million (US$500 million) worth of Alstom shares for a fixed subscription price of C$68.1 (EUR 47.50), which is monetizable after a three-year lock-up period after the deal’s closing date.

The proceeds will be used to pay down the company’s debt.

CDPQ will reinvest the monies from the deal into Alstom, making it the largest shareholder in the company with about 18 per cent stake. 

President and CEO Alain Bellemare said the MOU was a positive move which better positioned the company to focus on their business aircraft operations.

“Going forward, we will focus all our capital, energy and resources on accelerating growth and driving margin expansion in our market-leading C$9.2 billion ($7.0 billion) business aircraft franchise,” he said.

“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.”

He also said the sale of the transportation division has positioned the company to better address its debt issues, with the MOU being unanimously approved by the both Bombardier and Alstom’s board.

“Selling the rail business will allow us to reshape and redefine our capital structure (and) adding a substantial amount of cash to the balance sheet and removing (CDPQ’s) preferred equity in Transportation will change the game for Bombardier,” he said.

“Including the expected proceeds from previously announced transactions, Bombardier would have between C$8.6 – 9.2 billion (US$6.5 – 7.0 billion) of pro forma cash on hand, putting the company on a brand-new footing to address its C$12.3 billion (US$9.3 billion) of debt,”  

“We are confident that the sale of our rail business to Alstom is the right action for all stakeholders (because) 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.”  

Alstom chairman and CEO Henri Poupart-Lafarge said the purchase of Bombardier Transportation will give the French multinational a significant presence in the north American market.

“This acquisition will improve our global reach and our ability to respond to the ever-increasing need for sustainable mobility (and) bring to Alstom complementary geographical presence and industrial footprint in growing markets, as well as additional technological platforms,” he said.

“It will significantly increase our innovation capabilities to lead smart and green innovation (and) 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,” 

“(And) we will also further develop Bombardier Transportation’s historical presence in Quebec, drawing on (the city’s) well-established strengths in innovation and sustainable mobility.”

He also welcomed CDPQ as a new long-term shareholder in Alstom.

The move comes off the back of Bombardier’s exit from commercial aviation last week, when it sold its shares in joint-venture company Airbus Canada – the company which oversees the A220 program – to parent company Airbus.

The company is also in the process of selling its CRJ regional jet program to Mitsubishi Heavy Industries after entering into a definitive agreement with the Japanese company in June 2019.

The deal is worth C$728 million (US$550 million) and is expected to close by the middle on this year.

Spirit AeroSystems Holding entered into an agreement with the company in October 2019 to purchase its aerostructures, activities and aftermarket services operations in Belfast and Casablanca.

It will also acquire its maintenance, repair and overhaul facility in Dallas for C$661.8 million (US$500 million). 

This also is expected to close by the middle of this year.

Bombardier sold its turbo prop Q series program to De Havilland Aircraft of Canada for a net proceed of C$377.2 million (US$285 million) in May 2019.  

The company’s shares fell 1.2 per cent and traded at C$1.65 per share.

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