Bombardier Inc. plans to spin off a minority stake in its rail division in an initial public offering (IPO), but it's unclear whether the company has any use for Canadian investment banks to help it sell a stock that will have its primary listing in Germany.
"The reality is they really don't need them [Canadian investment banks], " said Jerome Hass, portfolio manager with Toronto-based Lightwater Partners Ltd. He thinks the company will likely end up throwing a "token amount" of business the way of the Canadian banks, but that the majority of the book could go to international banks.
"Bombardier knows that they need friendly bankers at this point given their financial situation so I don't think you want to do much to annoy your investment bankers."
When Bombardier sold $750-million in a bought deal offering in February, two Canadian investment banks, National Bank Financial Inc. and CIBC World Markets Inc. were among the leads. The other co-leads were UBS Securities Canada Inc. and Citigroup Global Markets Inc.
Canadian investment banks can take some consolation in that the payday from the stock sale may not end up being particularly lucrative, because the size of the offering may not be huge.
Steve Hansen, an analyst with Raymond James Ltd., asked CEO Alain Bellemare about the "exact size" of the stake that the company planned to sell during the conference call early Thursday.
"We will see when the time is right the exact level at which we will go depending on market conditions," Bellemare answered. "Our intention is to keep it relatively low."
"It was a pretty vague answer. But it didn't sound like it would be a 49-per-cent stake," said Mr. Hansen in an interview.
"I suspect it's probably in the lower range."
Arguably holding on to as much of the rail division as it can, makes sense for Bombardier. Relatively stable revenue from the rail division has historically helped smooth out the inherent turbulence in the aerospace division. But what's good for the company's balance sheet is potentially a turnoff for would-be investors in the rail division.
"The problem is if they separate the two businesses and you're a minority shareholder in the transportation business, I don't want to use my cash flow in the balance sheet to help support and finance the aerospace business," Mr. Hass said.
Another thing investors want to know about and that management did not provide colour on is how much debt Bombardier plans to apportion to the rail unit. Most of the company's considerable debt load is consolidated under Bombardier Inc. and not divvied up between aerospace and rail.
Mr. Hass says the higher the stake that comes to market, the more attractive it will be to investors, as it will put more control in the hands of individual shareholders.
"I don't think too many people would be interested in a 15-per-cent slice. But if it's 49 [per cent], people would be a lot more interested in it."