What's going on?
Alstom is done being choo-choosy: the French railway company has reached a preliminary $7 billion deal to buy transport manufacturer Bombardier’s train business.
What does this mean?
Alstom, which makes trains and railway infrastructure, has been looking to expand for some time so it can more effectively go up against its biggest competitor: China’s state-owned rail supplier. And after a major deal with Germany’s Siemens fell through last year, it now seems to have found a new plaything.
Bombardier might’ve let out a toot of relief: the firm has $9 billion of debt, over $1.5 billion of which is due next year. Short on cash to pay that off, the Canadian manufacturer has been selling off all sorts of assets, including its commercial jet business to Airbus. The company’s train business – which makes vehicles for San Francisco, London, and New York – looks like it’s next to depart, leaving Bombardier a lean, mean, private jet-making machine.
Why should I care?
For markets: Too good to be true?
Though the deal’s not done – talks are ongoing – investors seem to be getting ahead of themselves. Alstom’s stock went up 4% on Monday, suggesting investors think it’s bagged itself a bargain, while Bombardier’s shares fell. Play it cool, guys: European regulators halted Alstom’s deal with Siemens (they thought it could lead to unfairly prices) and the same could happen here. If it does, Bombardier might decide to change direction: it’s already thinking about selling its private jet business to US conglomerate Textron instead.
Zooming out: Jupiter ascending.
Alstrom’s reason for the merger – to scale up – is a pretty common one. Just ask fund manager Jupiter, which announced a $480 million deal to buy rival Merian on Monday. Both firms’ profits have come under pressure as the rise of passive investing puts the squeeze on active managers’ fees. They’re hoping that teaming up to manage $85 billion worth of assets will help.