Exclusive: Bombardier rejects Chinese offer for railway unit - documents

Wed Sep 9, 2015 5:02pm EDT
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By Benjamin Kang Lim and Matthew Miller

BEIJING (Reuters) - Canada's Bombardier (BBDb.TO: Quote) 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 state-owned Chinese buyer at this juncture.

Beijing Infrastructure Investment Co [BEINF.UL] (BII), a government-owned company that operates 18 metro lines in China's capital, has offered to acquire between 60 and 100 percent of Bombardier Transport, an Aug. 14 letter reviewed by Reuters 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 $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 Aug. 21.

Excluding debt, analysts and bankers have pegged the equity value of the transportation division at about $5 billion. Much of the company’s value currently resides in its transportation business as its aerospace division has been hurt by delays and cost overruns tied to its C-Series line of commercial jets.   Continued...

A man looks underneath an Innovia Monorail 300 train by Bombardier Transportation at the InnoTrans railway technology trade fair in Berlin, in this September 25, 2014 file photo. REUTERS/Thomas Peter/Files