Bombardier Transportation and the Adtranz Acquisition - Case Solution

Synergy Realization

TO: Pierre Lortie, President and Chief Operating Officer of Bombardier

Transportation (BT)

Executive Summary – Bombardier Transportation and the Adtranz Acquisition

With the recent acquisition of Adtranz, Bombardier Transportation (BT) is facing many challenges related to post-merger integration.

Overall, Adtranz is an attractive acquisition for BT. However, it would need to quickly address issues related to poor quality, lack of culture, large operating expenses due to repairs, and late deliveries to customers.

Three major synergy areas are quality improvements, customer base expansion, and cost reductions due to plant consolidations and reduction in sales, general administration, and labor expenses.

It is recommended that BT preserves the organizational structure in the short term but changes it in the long term as it identifies best practices in both companies.

The integration plan would involve establishing a Project Management Office, which will coordinate initiatives necessary to execute immediately (within 100 days), short-term (within the 1st year), and long-term (within 2-3 years).

The immediate focus should be on delivering topline by delivering all contracts with excellence and improving Adtranz’s reputation among its customers. A year after the acquisition, BT should shift focus to improving the bottom line.

The attractiveness of Adtranz as an acquisition target

There are many reasons why the acquisition of Adtranz is attractive for Bombardier Transportation. Customers are looking for full-package deals, and the acquisition of Adtranz allows BT to expand its products and services by integrating Adtranz’s expertise in propulsion systems, high-speed and inter- city cars, and signaling systems.1

The purchase of Adtranz will also enable BT to decrease the amount of competition it faces in Europe and prevent other competitors, such as Alstom or Siemens, from becoming even bigger. Europe is the nexus of technological advances in the industry, and the government is a strong supporter of rail transportation.

This acquisition helps BT increase its footprint in Europe and go after a broader base of customers. BT also had considerable expertise in integrating other companies in the past.

Applying BT’s production and cost control systems would help decrease Adtranz’s expenses related to penalty charges for late delivery, repair, and SG&A expenses and help it raise profits.

Strategically, strengthening the company’s rail business is viewed as an essential move to counter-balance Bombardier’s growing, by a cyclical aerospace group.2

The transportation division is a huge cash generator for Bombardier and has helped finance higher margins (twice that of the transportation group) for aerospace projects.

Risk Areas

One of the key risks is a weak culture and inconsistent processes and procedures at Adtranz. It had a history of unstable ownership3 and had not had enough time to develop its own culture fully.

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