Paige Ellis

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Bombardier Inc. has agreed to sell its rail division to France’s Alstom SA for US$6.3 billion to US$6.7 billion, which will be paid with a mix of cash and shares. Including liabilities, the total deal is worth US$8.2 billion, according to Bombardier.

The Quebec-based company said it expects to receive between US$4.2 and US$4.5 billion in net proceeds, which it will use to help pay down its debt, currently sitting at US$9.3 billion.

“Going forward, we will focus all our capital, energy and resources on accelerating growth and driving margin expansion in our market-leading $7.0 billion business aircraft franchise,” Alain Bellemare, president and chief executive officer of Bombardier said in a press release, citing a stronger balance sheet as a crucial benefit of the deal.

According to Bombardier’s statement, the newly-signed memorandum of understanding will see it and Caisse de dépôt et placement du Québec sell their interests in the rail business to Alstom.

In return, Bombardier will receive a much needed cash injection along with $550 million of Alstom shares for a fixed price, which can be monetized after a three-month, post-closing lock-up period.

Caisse, for its part, will reinvest its cash proceeds in Alstom, along with an additional US$760,000, for an 18-per-cent stake in the French company. Caisse will become Alstom’s largest shareholder, and will have two seats on the board.

“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, in a press release.

Poupart-Lafarge added that Alstom plans to welcome “all the talent and energy” of Bombardier’s rail division employees and will “further develop” the company’s historical presence in Quebec.

The French rail company also said Montreal will become Alstom’s North American headquarters, and announced plans to establish a centre for excellence in the city.

Neither company explicitly addressed whether any jobs will be added or eliminated as a part of the deal.

The transaction marks a major shift in Bombardier's turnaround plan as it casts off its problem-plagued largest division and commits itself solely to business jets.

On a conference call to discuss the deal, Bellemare told analysts the company has no plans to sell its business jet division.

The acquisition also signals an effort by Alstom to scale up amid rising competition from China's state-owned CRRC Corporation Limited, the world's largest train-maker.

The deal between Alstom and Bombardier 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.

If the Bombardier-Alstom deal overcomes regulatory hurdles, it is expected to close in the first half of 2021.

On the conference call, Bellemare said the break fee for the transaction is “in the range of $75 million,” to be paid by Alstom.

- With files from The Canadian Press.

Editor’s note: An earlier version of this story included a typo on the deal value and an error about the assumption of liabilities. BNN Bloomberg regrets the errors.