France's Alstom agrees to buy Bombardier's train division

The move would create the world's second-largest train manufacturer and a potential competitor to China's state-owned rail manufacturing behemoth. However, EU competition regulators must first give the green light.

French transport manufacturer Alstom agreed Monday to buy the rail division of Bombardier, in a move that would create the world's second-largest train manufacturer.

Alstom, the manufacturer of France's high-speed TGV trains, offered to pay up to €6.2 billion euros ($6.8 billion) in a mix of cash and shares for the cash-strapped Canadian firm's rail division, according to a memorandum of understanding signed between the firms.

The acquisition must now be approved by EU competition regulators.

European train manufacturers have been trying to build scale to compete with China's state-owned China Railway Construction Corporation (CRCC), the world's largest train manufacturer.

Read more: German and French ministers issue manifesto for European industrial policy

Greenlight from Brussels?

Last year, Alstom tried to merge its rail manufacturing with that of German industrial giant Siemens, but Brussels put the brakes on the deal, ruling that a merged company would have dominated the European market at the expense of consumers.

This time around, Alstom Chief Executive Henri Poupart-Lafarge is optimistic, and said Monday that the Bombardier deal was different than that failed Siemens merger and that regulatory hurdles were "not a huge issue."

"If there are some issues, they will much easier to solve than the one we had with Siemens," he told Reuters news agency.

French Finance Minister Bruno Le Maire is due to meet with EU's competition commissioner Margrethe Vestager on Tuesday to discuss the deal.

France was critical of the EU's decision to block last year's merger attempt, and supports the potential Alstom-Bombardier merger.

"This deal will allow Alstom to prepare for the future, against the backdrop of increasingly intense international competition," Le Maire said.

German labor union rejects merger 

Germany's largest labor union, IG Metall, condemned the potential merger in a press release, and said EU anti-trust regulators should evaluate the deal in the same manner as the attempted Alstom-Siemens merger.

Read more: No site closures at Bombardier in Germany

Germany's rail company, Deutsche Bahn, is a major customer of both Alstom and Bombardier.

If the deal goes through, the metalworkers union said it would "not accept unilateral consolidation" at the expense of German workers. 

"It's an effort to create  challenger to China's CRRC, which is a behemoth of a train make. A combination of Alstom and Bombardier would get close, becoming the second biggest train maker in the world with 15.3 billion euros in sales in 2018, not quite as big as CRRC at nearly 21 billion euros, but much closer."

The deal would also help Bombardier cope with a falling share price and rising debt, Winter added.

wmr/rc (Reuters, dpa, AFP)