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MarketScreener Homepage  >  Equities  >  Tokyo  >  Hitachi, Ltd.    6501   JP3788600009

HITACHI, LTD.

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Bombardier scrambles to craft rail merger with Alstom, Hitachi: sources

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01/24/2020 | 12:17pm EST
A worker walks in front of a Bombardier advertising board at the SBB CFF Swiss railway train station in Bern

Bombardier has approached France's Alstom and Japan's Hitachi to find a merger partner for its rail business as it struggles to contain costs that have eaten into margins, sources told Reuters.

By Pamela Barbaglia, Allison Lampert and Gwénaëlle Barzic

The Canadian manufacturer of planes and trains is working with Citigroup and UBS to strike a deal that could help create a rail champion to better compete with China's state-backed operator, CRRC.

Rail companies are eyeing consolidation to reduce costs through scale in a market dominated by CRRC, the world's largest train maker.

Bombardier has seen its share price plunge 37% since the start of the year after it flagged a 2019 profit warning on Jan.16.

It has been reviewing several rail merger scenarios in recent months which also involved a possible deal with Germany's Siemens and a Chinese counterpart, but these options failed to gain traction, one of the sources said.

It remains in active talks with Alstom, one of its closest rivals in Europe, while also looking at Hitachi as another merger option, the sources said, requesting anonymity as the matter is confidential.

Bombardier, Alstom, Hitachi and Siemens all declined to comment.

Discussions with French industrial group Alstom began in July and became serious in September, one of the sources said.

The French government is open to a rail deal for Alstom but no final decision has been made on the terms of a potential transaction, another source said.

Alstom, advised by Rothschild, was only recently involved in a similar rail merger with Siemens - a deal set to create a European rail powerhouse but subsequently halted over antitrust concerns.

Berenberg analysts said that there would be less of a regulatory barrier to a deal between Alstom and Bombardier since the pair has a lower European market share in high-speed rail and signaling.

Japanese conglomerate Hitachi was also approached last year, the sources said, but it was not immediately clear whether the talks are still ongoing.

Hitachi's biggest rail market in Europe is Britain where there is little overlap with Bombardier's operations.

Yet both companies are active in Germany where concentration may raise concerns among European authorities, one of the sources said.

Bombardier's selection of its preferred merger partner will ultimately hinge on the likelihood of winning antitrust approval and the remedies that can be offered to soothe competition concerns, the sources said.

European regulators are set to review two-decade old rules that determine if companies have the market power to hammer rivals - a move that could help Bombardier win consensus for its rail deal.

GROWING PRESSURE

Bombardier sold 30% of its rail business to Canada's second-largest pension fund, Caisse de depot et placement du Quebec, in 2015 after reviewing strategic options including a possible listing in Germany or Britain.

However, the unit has since struggled to cope with a handful of problematic rail contracts which have eaten into its margins, leading Bombardier to issue a profit warning for 2019.

The company recently slashed its guidance for its fourth-quarter earnings due to delays in business jet deliveries and higher rail costs.

The plane-and-train-maker, which has $9.7 billion in outstanding bonds according to Refinitiv data, faces growing pressure to quickly raise money from its transport unit, one of the sources said.

"They are serious about this. Without a deal the outlook is bleak," he said.

(Reporting by Pamela Barbaglia in London, Allison Lampert in Montreal and Gwenaelle Barzic in Paris; Additional reporting by Alexander Huebner in Munich; Editing by Susan Fenton)

By Pamela Barbaglia, Allison Lampert and Gwénaëlle Barzic

Stocks mentioned in the article
ChangeLast1st jan.
ALSTOM 1.65% 47.33 Real-time Quote.10.47%
BOMBARDIER INC. -4.11% 1.4 Delayed Quote.-27.46%
CITIGROUP INC. 0.22% 78.22 Delayed Quote.-2.09%
CRRC CORPORATION LIMITED 0.31% 6.49 End-of-day quote.-9.38%
HITACHI, LTD. 0.75% 4189 End-of-day quote.-0.50%
ROTHSCHILD & CO -1.23% 24.1 Real-time Quote.-4.69%
SIEMENS AG -0.26% 106.08 Delayed Quote.-8.84%
UBS GROUP -1.11% 12.875 Delayed Quote.6.54%
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Financials (JPY)
Sales 2020 8 905 B
EBIT 2020 703 B
Net income 2020 221 B
Debt 2020 738 B
Yield 2020 2,36%
P/E ratio 2020 17,0x
P/E ratio 2021 7,22x
EV / Sales2020 0,54x
EV / Sales2021 0,51x
Capitalization 4 047 B
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Technical analysis trends HITACHI, LTD.
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Income Statement Evolution
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Mean consensus BUY
Number of Analysts 12
Average target price 5 612,73  JPY
Last Close Price 4 189,00  JPY
Spread / Highest target 48,0%
Spread / Average Target 34,0%
Spread / Lowest Target 19,4%
EPS Revisions
Managers
NameTitle
Toshiaki Higashihara President, Chief Executive Officer & Director
Hiroaki Nakanishi Chairman
Mitsuaki Nishiyama Chief Financial Officer & Senior GM-Finance
Norihiro Suzuki CTO, Managing Executive Officer, Manager-R&D Group
George William Buckley Independent Outside Director
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