Bombardier stocks drop as investors flinch at sale of train division to Alstom
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Bombardier stocks drop as investors flinch at sale of train division to Alstom

MONTREAL — Bombardier Inc. saw shares drop as much as 10.3 per cent Tuesday after announcing the sale of its rail business to French train giant Alstom SA.

The deal would see the Montreal-based transportation company shrink by more than half as it focuses solely on making private business jets.

If approved by regulators, the US$8.2-billion transaction will help Bombardier slash its debt by half, capping a five-year turnaround plan that has seen the company shed numerous assets, including its commercial airplane division.

Analysts Seth Seifman and Yilma Abebe of J.P. Morgan say they have concerns about how the financial markets will react to a so-called “pure-play bizjet” company.

While private jets often yield higher margins, the luxury industry is more cyclical than rail, and the analysts say equity markets perceive business jets as “facing structural challenges” that are “unappealing from a growth perspective.”

Bombardier shares fell to a low of $1.48 on the Toronto Stock Exchange.

The acquisition by Alstom — whose stock dropped more than three per cent Tuesday — is expected to come under intense scrutiny from antitrust regulators in the European Union.

Last year, EU authorities blocked a proposed merger between Alstom and the train division of German industrial conglomerate Siemens AG, arguing the proposed tie-up would result in higher price tags on signalling systems and bullet trains.

National Bank of Canada analyst Cameron Doerksen says Bombardier is “well-positioned,” with annual revenue of US$7.5 billion and a backlog of US$14.4 billion as of Dec. 31.

This report by The Canadian Press was first published Feb. 18, 2020.

Companies in this story: (TSX:BBD.B)

The Canadian Press

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