MONTREAL — Bombardier Inc. has cemented the terms of its rail division sale to Alstom SA in a multibillion-dollar deal that will bolster the plane-and-train maker's books but leave it with less than originally expected.
The Montreal-based company said Wednesday it has signed a definitive agreement with the French train giant following a memorandum of understanding earlier this year.
Bombardier expects net proceeds of about US$4 billion (C$5.30 billion) including US$585 million in Alstom shares for a fixed subscription price of 47.50 euros per share.
The estimate falls up to 11 per cent below the expected net proceeds of between US$4.2 billion and US$4.5 billion that Bombardier projected when the takeover of its largest segment was announced in February.
Bombardier and the Caisse de depot et placement du Quebec will sell their interests in Bombardier Transportation to Alstom for a total of 7.15 billion euros, a reduction of 300 million euros from the previously announced price.
However, a more favourable currency exchange rate than seven months ago means the price in U.S. dollars is now $8.4 billion, up from the initial US$8.2 billion.
The lower net proceeds owe in part to problems at the train division, which has been plagued with delivery delays and financial penalties on high-profile contracts.
Last month Bombardier reported an additional charge of US$435 million at its rail business, largely related to costs at late-stage projects in the U.K. and Germany.
Alstom warned then that rail problems might affect negotiations, pointing to "negative developments" around the unit's operations and finances.
Nonetheless, Wednesday's agreement solidifies an acquisition now slated to close in the first quarter of 2021, slightly earlier than predicted.
The added certainty marks a "clear positive" for the debt-laden company, said National Bank analyst Cameron Doerksen.
"We are encouraged by the signing of the (sales and purchase agreement) despite the negative price revision," added Desjardins Securities analyst Benoit Poirier in a research note.
Bombardier, founded in Valcourt, Que., in 1942 as a snowmobile manufacturer, continues to stare down a US$9.3-billion debt load — nearly 60 per cent of it due within five years — which the rail sale will help pay down.
Late last month the European Commission approved the deal — the highest regulatory hurdle — though authorities have yet to flash the green light in several countries. Alstom shareholders must also approve the takeover in a vote scheduled for Oct. 29.
The pending sale will leave Bombardier as a pure-play manufacturer of private planes at a time when wariness of commercial air travel is soaring, but also as would-be business jets buyers may think twice about lavish expenses amid a recession.
This report by The Canadian Press was first published Sept. 16, 2020.
Companies in this story: (TSX:BBD.B)