Caisse de dépôt et placement du Québec is acquiring a 30-per-cent stake in Bombardier Inc.’s rail business for $1.5-billion (U.S.) in a move aimed at bolstering the manufacturer’s financial stability.
Bombardier said on Thursday it has struck a deal with the Caisse for a $1.5-billion convertible share investment in a newly created holding company, Bombardier Transportation (Investment) UK Ltd.
The new company, with its own board headed by Bombardier chief Alain Bellemare, will hold all of the assets of Berlin-based Bombardier Transportation, the company’s rail division.
Current Bombardier Transportation president Lutz Bertling will remain in his position.
The Caisse will acquire shares of the holding company convertible into a 30 per cent common equity stake in it; terms of the transaction include performance incentives that could see the Caisse’s position reduced to 25 per cent or increased to 42.5 per cent depending on whether the rail unit outperforms or underperforms its business plan.
The deal values Bombardier Transportation at $5-billion, the company said.
It comes just weeks after the Quebec government promised to invest $1-billion for a 49.5-per-cent stake in Bombardier’s struggling C Series new-jet program that has been grappling with cost overruns, delays and slow sales.
Bombardier had been examining several options for its rail division, including an initial public offering and an auction process for the private placement of a minority stake, the company said Thursday.
“The transaction announced today, when completed, will crystallize the value of Bombardier Transportation and strengthen Bombardier’s financial position, with no increase in debt,” it said.
Terms of the deal call for the Caisse to get a minimum return of 9.5 per cent. If, however, the rail unit outperforms its business plan, the Caisse’s percentage of ownership on conversion of its shares decreases by 2.5 per cent annually, to a minimum threshold of 25 per cent. The convertible shares’ minimum return also decreases, from 9.5 per cent to 7.5 per cent.
In the event of underperformance, the Caisse’s percentage increases by 2.5 per cent annually to a maximum of 42.5 per cent over a five-year period; the convertible shares’ miminum return increases by 2.5 per cent up to 12 per cent.
The Caisse has the right to trigger an initial public offering or sale of Bombardier Transportation shares any time after five years, while Bombardier has the right to buy back the Caisse’s interest at any time after three years, at the higher of the fair market value or a minimum three-year 15 per cent compounded annual return.
The two parties also agreed to a cash reserve threshold of at least $1.25-billion in recognition of “the importance of Bombardier’s financial stability to the entire corporate group.” If the cash reserves fall below that level, Bombardier’s board will create a special initiatives committee to get the reserves back up.
BERTRAND MAROTTE
MONTREAL — The Globe and Mail
Published Thursday, Nov. 19, 2015 6:20AM EST
Last updated Thursday, Nov. 19, 2015 9:06AM EST