France’s Alstom SA has agreed to buy the rail division of Canada’s Bombardier Inc for up to 6.2 billion euros ($6.7 billion) to create the world’s No. 2 train manufacturer and better take on Chinese leader CRRC Corp.
The cash and shares deal, announced on Monday, is the latest attempt by Western rail firms to try to build scale.
Alstom, the maker of TGV bullet trains that speed between French cities such as Paris and Nice, was blocked last year from merging with Germany’s Siemens AG by European regulators, who argued the deal could penalize consumers.
The agreement between Alstom and Bombardier would unite companies with an estimated $17 billion in combined revenue.
The French firm said the two were complementary geographically, adding Bombardier’s European footprint was stronger in northern countries and the Canadian firm would add expertise in monorail trains as well as rail services.
“We don’t see it as a huge issue,” Alstom Chief Executive Henri Poupart-Lafarge said of regulatory hurdles on a conference call. “If there are some issues, they will be much easier to solve than the one we had with Siemens.”
A combination with Bombardier would give Alstom a share of between 40% and 60% of the European regional train market, according to estimates cited by union sources in France, well above Siemens at 10% to 20%.
But some analysts have said there could be less opposition to a deal this time as Alstom and Bombardier have a lower combined European market share in high-speed rail and signaling.
The companies have informally briefed EU antitrust regulators on the deal, according to sources familiar with the matter.
The French government, which had criticized the EU’s veto on the Siemens merger, welcomed the transaction.
“This deal will allow Alstom to prepare for the future, against the backdrop of increasingly intense international competition,” Finance Minister Bruno Le Maire said, adding he was due to discuss it with the EU’s antitrust boss, Margrethe Vestager, on Tuesday.
Bombardier and Alstom said they expected the deal to close in the first half of 2021. Their agreement includes a 75 million-euro break fee.