Bombardier railway division not for sale

Analysts said a big move involving Bombardier's railway division would make sense.

0 April 14, 2015
by Ross Marowitz, The Canadian Press

12-nov-Bombardier-rail-division-360MONTREAL — Quebec’s economy minister says he’s been assured by Bombardier’s chairman that the transportation’s railway division is not for sale despite a report suggesting the company is working on a sale, merger or spinoff that could be worth up to US$5 billion.

“I received confirmation this morning (from Pierre Beaudoin) that the transportation division is not for sale,” Jacques Daoust said in a news release.

Daoust said there is currently a worldwide consolidation movement in the transportation industry, and Bombardier is considering whether to participate.

But he added the company’s unwillingness to sell its Berlin-based rail operations is good news for employees and all Quebecers.

Earlier in the day, analysts said a big move involving Bombardier’s railway division would make sense.

Benoit Poirier of Desjardins Securities said such a transaction would generate proceeds to fund aerospace development programs like the CSeries jet for commercial airlines and refocus Bombardier as a “pure-play aerospace player.”

He added that a deal to separate Bombardier’s rail and aerospace businesses would signal to investors that the new management team headed by Alain Bellemare isn’t afraid to make big strategic decisions.

Bombardier’s shares surged more than seven per cent in early Friday morning trading. They closed at $2.64, up four cents or 1.5 per cent on the Toronto Stock Exchange.

Bombardier’s stock — usually one of the Toronto market’s most active issues — has plummeted to a low of $2.26 amid poor results, suspension of its dividend and delays in its CSeries commercial jet.

The US$5 billion reported value — equal to US$2.24 or C$2.80 per share — is above analyst estimates.

By Poirier’s calculation, the rail division could be worth roughly US$4.6 billion, or between US$1.57 and US$1.96 per share

Walter Spracklin of RBC Capital Markets pegs Bombardier Transportation’s value at US$3.47 billion or US$1.45 per share. However, he said the value could be higher depending on how interest, taxes and debt are divided between the two divisions.

Spracklin noted that Bombardier said in February that it would explore initiatives to reduce debt but the analyst said he was would be surprised if the company proceed without a chief financial officer (the current CFO’s retirement was announced Thursday) and a CEO that’s is only two months on the job.

“More likely, the company is proceeding with an analysis exactly as it said it would do on Feb. 12. As a result we do not view this news as material,” Spracklin said

Bombardier spokeswoman Isabelle Rondeau had said the company wouldn’t comment on a Reuters report, which cited several unidentified sources as saying Bombardier was working on a deal that could be worth up to US$5 billion.

“We just finished a very successful financing plan (and) we’re in no rush to do a fire sale,” she said in an interview. “We want to make sure we will create value for the shareholders.”

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