Why Was Adtranz an Attractive Acquisition for Bombardier? What Are the Arguments Against an Acquisition?

1. Why was Adtranz an attractive acquisition for Bombardier? What are the arguments against an acquisition?

Adtranz is an attractive acquisition for Bombardier because of these reasons :

a. to help Bombardier diversify their business portfolio. Known as a transportation group, Bombardier positioned itself as a “premium diversified company”. However, based on the profit before taxed-segmented by division in exhibit 1, we can conclude that 60% of the company’s profit came from aerospace group. Based on this performance, people will probably recognize Bombardier as an aerospace company rather than a business covering different businesses.

b. To be known more in international world. From the data in Exhibit 1, revenues of Bombardier largerly came from from western area (Canada and United States), accounting to more than 60% (estimation) in 2001. While when the joint venture that formed Adtranz, it was the largest rail service provider in the world with annual sales of 4.5 billion. Because the sales of Adtranz has degraded over the years, DaimlerChrysler began to have an intention to sell Adtranz that became as non-core business. It gave a good opportunity to Bombardier to make an acquisition.

c. Growing privatization of European Union rail industry. As we can see from Exhibit 3, developed countries such as France, Belgium, and Spain had their privatized railway. Comparing to competing the companies with affiliation to a country, it is less difficult to compete those privatized companies. Bombardier able to diversify the countries it planned to enter, to help reducing their investment risks. Actually, now bombardier has expanded its railway service business into 20 European countries.

d. To increase technical competencies. From the case, it said that the acquisition over Adtranz not only extend the portfolio of Bombardier, but also increase the competencies in propulsion system and train controls.

Some risks to consider for Bombardier if decided to acquire Adtranz :

a. The long wait time duration for the approval from EU commission. Normally at the stage of acquisition, the parent company should organize to restructure, but since by that moment Bombardier hadn’t got the approval, then the acquisition could fail. Bombardier could waste a lot of time in conducting this deal.

b. Risk of being accused of monopoly because Adtranz was one of the four biggest railway corporations in Europe, and Bombardier was the leader in America.

2. How do you make money in the rail equipment industry? What was BT’s business model?

There are some factors to make a success in rail equipment industry, first it depends on the size of its acquisitions. This is the most important factor because it will give permit to Bombardier to be on several continents and on several markets and that make the influence wider. Also not to mention the effect of this industry, it will diversify in terms of technologies that will enhance the company’s efficiency. It will help Bombardier to be more efficient