(Bloomberg) – Bombardier Inc. has announced that it will sell its rail unit to French train maker Alstom SA at a price lower than what the two parties agreed to in February, but would close the deal sooner than expected.
The new terms are based on an enterprise value of $ 8.4 billion for the division, down $ 350 million, Bombardier said in a statement. The Montreal-based company said it would receive net proceeds of around $ 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 look for better terms afterwards. that 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 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. La Caisse will receive $ 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. While the deal received preliminary approval from the European Union in July, a few more countries are due 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 debt, which stood at $ 10.3 billion at the end of the second quarter. Concern over a potential default has caused its shares to fall 77% this year.
(Updates with market reaction and more information on the deal throughout)
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