Bombardier Bonds, shares increase with signature of rail sale to Alstom

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Bombardier Inc. has announced that it will sell its rail unit to French train maker Alstom SA at a price lower than that agreed between the two parties in February, but would close the deal earlier than expected.The new terms are based on an enterprise value of US $ 8.4 billion for the division, down US $ 350 million, Bombardier said in a statement. The Montreal-based company said it would receive net proceeds of around US $ 4 billion, $ 500 million less than expected seven months ago.

Bombardier’s debt has risen sharply. Bonds due in October 2022 traded at 91.3 cents on the dollar, down from 84.2 cents on Tuesday. Stocks jumped 9.9%, their biggest gain since July 22. Alstom shares rose 1.1%.

“I think a lot of people were expecting a bigger price cut,” said Dan Fong, analyst at Veritas Investment Research Corp. Alstom had previously hinted that it might seek better terms after the Canadian company reported a second quarter loss on unit write-downs.

The fact that the deal is now expected to close in the first quarter of 2021, rather than the first half, is also encouraging, Fong said. “Looks like they’re going to get a significant chunk of the revenue sooner, consolidate the balance sheet and realign the business to the business aircraft division. So overall, I think it sounds pretty positive.

The Caisse de dépôt et placement du Québec, a minority investor in the rail sector, is also selling its stake to Alstom. The Caisse will receive US $ 2.2 billion, Bombardier said.

Getting a definitive deal is a positive step for Bombardier, according to National Bank of Canada analyst Cameron Doerksen. “Today’s news creates more certainty about cash products for Bombardier as well as the closing time,” he said in a report.

There are still obstacles to overcome. Although the deal received preliminary approval from the European Union in July, a few other countries are to give their consent and Alstom shareholders are expected to back it in a vote on October 29, he added. .

The terms of the deal were “adapted to the current situation,” Alstom said in a separate statement. Bombardier said the new price reflects “current operational performance and market conditions”.

Bombardier is counting on the sale to reduce its indebtedness, which stood at US $ 10.3 billion at the end of the second quarter. Concern over a potential default has caused its shares to fall 77% this year.

– With the help of Divya Balji.



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