ALSTOM's Acquisition of Bombardier

Steffen Dyrholm Bundgaard

Student thesis: Master thesis


The scope of this thesis has been to value the synergies that Alstom could obtain of acquiring Bombardiers trains business and how they are valued, by using the academic framework of Aswath Damodaran. Furthermore, the academic framework of Christian Koziol is used to estimate fair standalone valuations of the companies incorporating the effect of default risk and bankruptcy costs, which for Bombardier is very significant. Bombardier has an estimated risk of default of 19% in 2018.
The biggest train manufacturer in the world CRCC are determined to begin to target global sales, imposing a relevant threat against Alstom’s future profitability. In combination with a growing market Alstom could counter this threat and increase their value significantly with the acquisition of Bombardier. An assessment of the possible value from synergies in such an acquisition, given and the current opportunities threats Alstom are exposed to, is therefore assed to be highly relevant.
The combined framework suggest that an overvaluation of the calculated synergies would be present when correcting the standalone valuations with default risk and bankruptcy costs. This is under the assumption that the default risk from Bombardier doesn’t transfer to Alstom. If the calculated synergies are corrected for the value arising from a lower default risk, the value of synergies would hereafter seem to be more representative in relation to Alstom’s own expectations to the value of future synergies. However, the value using the combined framework of Aswath Damodaran and Christian Koziol still seems to yield an optimistic result.
The research concludes a combined enterprise value with synergies of Alstom and Bombardier of 22,7b euros which more than doubles the enterprise value without synergies of 10b euros given the standalone valuations which assumes a risk of default of Bombardier of 19%. After decreasing the EV with synergies, with the increase in value from the lower default risk in the combined firm of 0,18% because of Alstom’s high credit rating, the EV with synergies is calculated to 18,1b euros. This seems to be a more reliable estimate in practice as this estimate yield calculated synergies of 3b euros, which are in line with the Alstom’s own expectations of the possible NPV of achievable synergies.

EducationsMSc in Accounting, Strategy and Control, (Graduate Programme) Final Thesis
Publication date2020
Number of pages72