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Bombardier announced it will sell its rail division to Alstom, a France company, for $8.2 billion as it wants to focus on the aviation sector.
Bombardier, a Canadian multinational company that deals with high-speed rail train sets, jets and also public transport vehicles, announced on Monday that it is in talks with France’s Alstom to sell off its rail division for a whopping $8.2 billion. The company said that it decided to put more focus on its aviation sector and settle pending debts.
Alstom SA is a multinational company that deals in rail transport and related businesses. According to a post by CNBC, the set price will cover the equity and also the pending debts. Alstom is planning to settle the deal using its shares and the remaining in cash.
What the Bombardier-Alstom Deal Means to the Stock Market
Since 2013, Bombardier (BBD.B) stock price has been declining to hit its lowest in 2016 where the shares traded at $0.5. Although retesting its lowest again in the past few months, since the beginning of February, the stock price has been recovering slowly.
At the time of reporting this news, the shares were trading at $1.24 with the upward momentum picking the pace. Selling off a section of its equity will save the company that has in the past been struggling to stay afloat and compete with other international companies.
On the other hand, Alstom has been doing quite well in the market for the past few years. Its stock market price has been steadily rising and broken all the previous hurdles at ease. However, the market price dropped by three units from $51 to trade at $47.9 at the time of writing. Although the bulls still showing the tenacity to push up further, if the current drop persists, the stock will fall to retest last year’s support level at $37.
Way Forward for Bombardier and Alstom
To close the deal, Bombardier said that it would be receiving proceeds of up to $4.5 billion once it verifies the portion that will be allotted to the Canadian pension fund manager, Caisse, who owns 30% of the rail unit. After the deal, Caisse will be the biggest shareholder followed by Alstom.
However, the deal is expected to roll over until the first quarter of 2021, when the two parties will wide up on the deal. With the two companies’ board members coming into a common memorandum, shares in both companies are expected to scale up due to public confidence.
Bombardier acquired Canadair back in the late 80s from the government a time when the airline was struggling to make profits. By 1990, the company had made a good return and acquired Learjet and later founded its Flexjet.