Bombardier is planning an initial public offering for a minority stake in the rail unit.The Globe and Mail
Three months into his mission to turn around struggling Bombardier Inc., chief executive Alain Bellemare is pressing ahead with some key decisions in a sweeping strategic review that includes the sale of a minority stake in the rail division. But spinning off a small part of Bombardier Transportation could be just the start of what he has in store for the unit.
Mr. Bellemare wants to unlock what he sees as "tremendous value" in Berlin-based BT, he said Thursday after the release of first-quarter earnings that beat analysts' expectations.
"We want to keep all our options open," he said. "The best option is an IPO but it's not the only option," he said, adding that it's too early to go into more detail on the IPO or how big a minority stake would be sold. But he said not just the IPO but a "range of scenarios" for BT are being considered.
Recently, there has been intense public speculation that Bombardier was in talks with two Chinese state-owned train makers for a possible sale of BT, but Mr. Bellemare said on Thursday that Bombardier likes the business and wants to keep majority control of it.
Observers have pegged the value of BT at anywhere from $3-billion (U.S.) to $5-billion. The cash from an IPO would not only help boost the plane and train maker's financial position and partly fund the aerospace side but also position the rail unit for possible partnerships or joint ventures with other players, Mr. Bellemare said.
AltaCorp Capital analyst Chris Murray said he sees Bombardier offering a modest 20-per-cent stake in BT and then seeking to participate in ongoing industry consolidation, including a possible full sale.
"While we believe there are a wide range of outcomes for valuation, we believe the IPO offers the opportunity to further develop joint ventures through the creation of a liquid currency for other international players, reduce debt at the remaining business and creates a 'stalking horse' valuation to gauge further interest in further sales, including the entire business," Mr. Murray said in a research note Thursday.
Bombardier needs to bulk up its rail unit in the face of developments such as the planned merger of Chines firms CSR Corp. and China CNR Corp., said Andrey Omelchak, president and chief investment officer for Lionguard Capital Management, a Montreal-based asset manager catering to high net-worth clients and institutional investors.
BT must become a more aggressive player globally and be in a position to make more acquisitions; it faces "formidable competition" against a newly created Chinese giant, Mr. Omelchak said.
"I view this IPO as a band-aid solution," he said. "Bombardier Transportation cannot be left on the sidelines. Over time they will lose market share."
Analyst David Tyerman of CanaccordGenuity said an IPO could provide BT with "a way to do [joint ventures] or other arrangements, which could be positive. The main downside I see is it could limit cash flows between BT and [Bombardier Aerospace] entities, although that is probably already the case to some degree, because of [Bombardier's] credit agreements."
Meanwhile, Bombardier is eyeing another round of job cuts in its aerospace division as sales slow for its long-range Global line of business jets. The aerospace unit has also experienced major cost overruns and delays on its marquee CSeries commercial jetliner program and suspended work on its Learjet 85 business jet. The stock price has been steadily declining.
For the first quarter, Bombardier posted adjusted first-quarter earnings of 9 cents per share, beating analysts' consensus estimate of 5 cents.
Revenues in the quarter were $4.4-billion, up 1 per cent from the year-earlier period.
The company also confirmed the launch customer in 2016 for its CSeries aircraft is Deutsche Lufthansa AG's subsidiary Swiss International Air Lines. The CSeries is scheduled to make its debut at the Paris Air Show next month.
Bombardier also said on Thursday that it is planning to "adjust production rates in line with demand" for its Global 5000/6000 business jets and warned of looming layoffs at facilities in Toronto and Montreal.
Bertrand Marotte