Bombardier Transportation and the Adtranz Acquisition

Bombardier Transportation and the Adtranz Acquisition

Bombardier Transportation (BT) is the rail equipment division of Bombardier Inc. in Canada, focused on manufacturing and servicing rail projects. The beginnings of what became BT started in 1974, with the construction of 400+ rail cars for the city of Montreal, and quickly grew to become one of the preeminent builders of rail cars globally. Bombardier’s growth strategy, starting in the early 1980s, involved low-cost acquisitions in the rail industry and quickly bringing these companies into its operational structure. This often required turning poorly performing companies around and installing Bombardier’s successful management and operational strategies. Bombardier also entered the aerospace industry around the same time as rail to further diversify their revenues. These diversification efforts, which created balanced corporate growth in 1990s, together with ambition to march into European mass transit rail market, beget its desire to acquire Adtranz.

Adtranz was the largest rail service provider in the world in 1995 and is twice the size of BT in terms of revenues. Despite its geographic scope in Europe and substantial revenue streams, Adtranz reported continual losses from 1995 to 2000. It has a poor reputation with delivering high-quality products and reliable service. However, Adtranz’s core competencies are in propulsion systems and train controls, which BT seeks to vertically integrate into its business.

Adtranz’s viability as an acquisition target

BT and Adtranz’s relative strengths complement each other, and the current competitive environment seems to highlight potential synergies that could be captured through a well-executed merger. A merger would make BT the largest rail manufacturer in the Eurozone and add Adtranz’s competencies in propulsion systems and train controls. Additionally, Adtranz operations would benefit from BT’s ability to deliver high quality products, execute contracts, and govern effectively. As the largest player in the Eurozone post-merger, BT also stands to lead technological development in the sector, allow further expansion into South American and Asian markets, and protect against substitutes. BT is currently the smallest of the four major competitors in Europe; it stands to gain tremendously by leveraging its positive brand association with greater manufacturing and service capability. The move reduces industry competition and therefore reduces the greatest threat to BT’s current operations. Moreover, the favorable European Union (EU) regulatory environment also invites a merger between Bombardier and Adtranz, while obstructing a merger between Adtranz and the larger European competitors. Finally, merging with Adtranz quickly grows BT’s business operation and provides cash to the parent organization to finance higher margin segments in