(New throughout, adds background, details and more sources)
PARIS/MONTREAL, Feb 12 (Reuters) - Alstom’s board will meet on Wednesday evening to discuss buying Bombardier’s rail unit, sources familiar with the matter said, and a media report said the French train maker has valued the business at just under $7 billion.
French TV station BFM reported on its website that Alstom was set to make a firm offer for Bombardier’s Berlin-based rail division. It said Bombardier opened its books to Alstom for due diligence after finding Alstom’s first offer attractive.
Three industry sources familiar with the talks said a deal would involve Alstom acquiring Bombardier’s largest unit by revenues.
Sources, seeking anonymity, said the private negotiations were advanced but cautioned a deal was not certain. Alstom and Bombardier declined comment.
A deal would help Montreal-based Bombardier improve its financial footing. It faces higher-than-expected-costs in its rail division and $9.7 billion in outstanding debt, according to Refinitiv data. An acquisition would help Alstom compete more effectively against Chinese giant CRRC Corp..
A planned tie-up between Alstom and Germany’s Siemens AG collapsed last year due to European regulatory concerns.
“After the failure of the Alstom-Siemens merger, it (a deal) would be a good strategic rebound for Alstom,” said a third source familiar with the French government’s thinking.
Bombardier’s rail assets are heavy in lower-margin rolling stock which are less attractive for Alstom, the source noted, but the deal would still offer synergies.
“It’s still a good thing in the face of Chinese consolidation.”
Quoting several sources close to the company, BFM said Alstom had recently made a non-binding offer valuing the business at $7 billion. The new offer would be binding and would be worth less than the first one, BFM said.
BFM reported that Alstom would finalise its offer after Bombardier releases earnings on Thursday. BFM quoted sources as saying that while the firm has a $35 billion order book, many of its contracts are not very profitable.
Alstom would offer cash for Bombardier’s 70% stake of its railway business and Alstom shares for the 30% held by Canadian pension fund manager Caisse de dépôt et placement du Québec, the report added. It said Alstom was the only bidder for the railway business, after Siemens and Hitachi withdrew.
Caisse, which acquired the stake for $1.5 billion in 2016, declined comment.
One of the industry sources told Reuters that several options are on the table, including Alstom doing a capital raise and the Caisse becoming one of the French company’s main shareholders with Bouygues, a French conglomerate that owns a 15% stake in Alstom.
Reuters reported last month Bombardier had approached Alstom and Japan’s Hitachi to find a merger partner for its rail business. (Reporting by Maya Nikolaeva in Paris, Allison Lampert in Montreal and Arno Schuetze in Frankfurt. Additional reporting by Gwénaëlle Barzic in Beaufort and Michel Rose in Paris Writing by Geert De Clercq Editing by Sarah White/Christian Lowe/Jane Merriman/David Gregorio)
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