France’s Alstom Buys Bombardier Railway Unit Amid Growing Chinese Competition

French rail firm Alstom SA is to take over the railway unit of Canada’s Bombardier Inc. in an $8.2 billion deal that could give it the scale needed to compete with its state-owned Chinese rival.

Alstom said on Monday it has signed a memorandum of understanding with Bombardier that would see it pay up to €6.2 billion ($6.7 billion), in a mix of cash and stock, for the Bombardier Transportation unit. Bombardier said in a separate statement on the same day that, including Alstom’s assumption of the unit’s debt, the deal will cost a total of $8.2 billion.

“I’m very proud to announce the acquisition of Bombardier Transportation, which is a unique opportunity to strengthen our global position on the booming mobility market,” said Henri Poupart-Lafarge, chairman and CEO of Alstom. “This acquisition will improve our global reach and our ability to respond to the ever-increasing need for sustainable mobility.”

Alstom’s tie-up with Bombardier comes at a time when the global train-making sector is feeling an increasing impact from China, with the state-owned CRRC Corp. currently sitting as the world’s largest rolling-stock manufacturer.

The tie-up will create a combined business with revenue of around €15.5 billion, the Alstom statement said, making the French company the world’s second-largest rolling-stock manufacturer. By comparison, CRRC posted revenue of 219 billion yuan ($31 billion) with a profit of 11.3 billion yuan for 2018, according to its financial report.

Alstom’s deal with Bombardier comes about one year after a similar deal between it and Germany’s Siemens AG was blocked by European antitrust authorities. One of the major arguments to justify the proposed merger between the French and German giants at the time was competition from China.

Listed in both Shanghai and Hong Kong, CRRC was created in 2015 through a merger between China’s southern and northern rolling-stock manufacturers. CRRC currently operates in nearly 100 countries, according to the company.

Exiting the rail business will allow Bombardier to focus more on aircraft manufacturing, where it is one of the world’s few significant players outside the duopoly of Boeing and Airbus.

Contact reporter Mo Yelin (yelinmo@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)