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Bombardier snubs Chinese buy offer
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CANADA’S Bombardier has turned down a Chinese offer to buy up to 100 percent of its prized rail unit, documents seen by Reuters show, underscoring its reluctance to cede control of the unit to a Chinese buyer at this juncture.
Beijing Infrastructure Investment Co (BII), a state-owned company that operates 18 metro lines in China’s capital, has offered to acquire between 60 and 100 percent of Bombardier Transport, an August 14 letter outlining BII’s offer showed.
Bombardier, which is looking to raise cash by listing a minority stake in its transport unit later this year, is attractive to Chinese players like BII, which, encouraged by the Chinese government, are seeking to acquire leading foreign technology to grow their businesses and global footprint.
Selling a majority stake would, however, expose Bombardier to political pressure in its home province of Quebec, where it generates high-paying jobs that could be lost through a takeover by a foreign buyer at a time when Canada’s economy has slipped into recession.
In the letter addressed by BII Chairman Tian Zhenqing to Bombardier’s Executive Chairman Pierre Beaudoin and not yet disclosed to the market, BII put the unit’s enterprise value — calculated as equity plus debt — at US$7-8 billion.
But Bombardier’s Vice President for Mergers and Acquisitions Louis Veronneau, who was copied in the non-binding offer, rejected the proposal in a letter to Tian one week later.
“We are not exploring a transaction involving a majority stake at this juncture,” Veronneau wrote back on August 21.
Excluding debt, analysts and bankers have pegged the equity value of the transportation division at about US$5 billion. Much of the company’s value currently resides in its transport business as its aerospace division has been hurt by delays and cost overruns tied to its C-Series line of commercial jets.
At Tuesday’s close, Bombardier shares had fallen 70 percent this year, and the company’s market capitalization sits at about US$2 billion, well below the equity value of the transportation unit, reflecting the struggles at its aerospace business and heavy debt load.
“BII and BT (Bombardier Transport) will have an incomparable synergetic relationship, and the combination will create a globalized world-class rail industrial group running the whole industrial chain,” Tian wrote, adding that he would keep management teams intact.
Tian said BII planned to fund the acquisition with cash reserves and possibly debt.
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