Bombardier Transportation is known as one of the world's largest manufacturers of passenger rail cars. It entered into a negotiation for the purchase of Adtranz, a manufacturer of rail equipment based in Europe. During the negotiation, the CEO encountered several challenges. The new CEO was likewise faced with deciding, among others, the pace of the post-merger integration, organization structure, and personal management style.
Allen Morrison; David Barrett
Harvard Business Review (904M23-PDF-ENG)
May 14, 2004
Case questions answered:
- How should Bombardier Transportation integrate AdTranz?
- Why is Adtranz an attractive acquisition target for Bombardier?
- What are the biggest synergy areas? How big are they, and how hard are they to realize?
- What are the major risk areas in this acquisition?
- Should the combined company be re-organized? Why? How?
- What should the high-level post-merger integration plan look like? What are the major milestones in the integration process? What integration activities should come first?
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Case answers for Bombardier Transportation and the Adtranz Acquisition
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 is facing many challenges ahead 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 Project Management Office which will coordinate initiatives necessary to execute immediately (within 100 days), short-term (within the 1st year), long-term (within 2-3 years). The immediate focus should be on delivering topline by delivering all contracts with excellence and improving Adtranz reputation among its customers. A year from 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 acquisition of Adtranz allows BT to expand its products and services by integrating Adtranz expertise propulsion systems, high-speed and inter-city cars, and signaling systems.1 The purchase of Adtranz also will enable BT to decrease the amount of competition it faces in Europe and pre-empt 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. By applying BT’s production and cost control systems, it would help decrease Adtranz 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 Transportation division is a huge cash generator for the Bombardier and has helped finance higher margins (twice that of the transportation group) aerospace projects.
One of the key risks is 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. For DaimlerChrysler, this division was least important to their overall strategy. It played a…