A new report that Bombardier Inc. is in talks to merge its vast trains operations with those of a rival drove the Canadian company's shares up and revived speculation that the train industry is on the verge of consolidation to cure overcapacity problems.
Bombardier shares were up 6.76 per cent in Toronto after Bloomberg, citing anonymous sources, reported that Bombardier and Siemens AG of Germany are in talks to combine their train operations.
Speculation that Bombardier Transportation (BT), as the train division is known, might merge with a European or Chinese competitor is not exactly new. In recent years, rumours of merger or purchase attempts have surfaced every few months. Bombardier itself has said it is open to a deal for the train division, whose headquarters are in Berlin.
In 2015, when Alain Bellemare replaced Pierre Beaudoin as Bombardier's chief executive officer, he said the company would consider consolidation options for BT. At the time, Bombardier had contemplated putting BT on the stock market through an initial public offering but chose instead to sell 30 per cent of BT to the Caisse de dépôt et placement du Québec for $1.5-billion. The investment valued BT at about $5-billion.
BT declined to comment on the report that it and Siemens were in talks. "We can only say that we don't comment on market speculation," Claas Belling, BT's head of external communications, said on Tuesday.
Shares of Siemens, one of the world's biggest technology and engineering companies, also rose, although far less sharply, closing up 0.35 per cent. Siemens, which makes the high-speed ICE trains used in Germany, also declined to comment.
Bloomberg said the two companies were in talks to merge their train-making and signalling activities and that a deal could come by midyear.
In a note, Desjardins analyst Benoit Poirier said a combination of the trains divisions of Bombardier and Siemens would make strategic sense. "Over all, we believe such a combination would benefit [BT] as it would be able to compete more effectively against Chinese competitors who are currently expanding aggressively internationally."
He warned, however, that the deal would face antitrust issues in Europe and would be subject to approval by the Caisse.
In an interview with The Globe and Mail in Berlin last year, BT president Laurent Troger, a systems engineer from France who spent his early career years developing automatic-weapons systems for the French navy and who joined BT 12 years ago, hinted that Bombardier is unlikely to sell its train division outright. Bombardier is controlled by the Bombardier and Beaudoin families through their super-voting A shares.
"I know Laurent [Beaudoin] and Pierre, and they are passionate about our products," Mr. Troger said. "They like trains, and they came into this business not as short-term investors. This highlights a significant commitment to rail. Nothing we have in our hands should change their minds."
A recent French media report suggested that French train company Alstom might work a deal to join forces with BT. The report, carried by Capital, a business magazine, said that French industrial giant Bouygues wants to sell its 28-per-cent stake in Alstom and that Bombardier is the "most serious" potential buyer.
Alstom and Bombardier know each other well. The two companies operate a joint venture to build as many as 255 regional, double-decker trains for the RER network around Paris. The order is valued at €3.75-billion ($5.3-billion).
It is widely known that BT has been courted by Chinese train companies, who are eager for a "turnkey" operation in Europe that would instantly give them a full operating and managerial presence, from factories and R&D centres to lobbyists and lawyers.
The merger of China's two largest train makers has heightened competition and Bombardier is said to have held exploratory talks in recent years with a number of strategic players. A combination between the two would be "a European answer" to the Chinese merger, rail consultancy SCI Verkehr has said.
In late 2015, Reuters reported that Beijing Infrastructure Investment Co., a state-owned company that operates metro lines in Beijing, offered to buy 100 per cent of BT and put the company's enterprise value (debt and equity) at $7-billion (U.S.) to $8-billion. On Tuesday, Bombardier's market value was $5-billion (Canadian).
Bombardier may be tempted to extract more value from BT because of problems in the aerospace division that nearly sent the company into bankruptcy in 2015. The liquidity crisis was partly cured by the Quebec government's $1-billion (U.S.) investment in Bombardier and the BT investment from the Caisse.
BT is one of the world's largest train companies. In the last fiscal year, it had revenue of $7.6-billion, an order backlog of $30.1-billion and more than 37,000 employees. BT's earnings before interest and taxes came to $396-million while the commercial aircraft side reported an EBIT loss of $903-million.
With a file from reporter Nicolas Van Praet
Eric Reguly