April 10, 2015 / 11:44 AM / in 2 years

Exclusive: Canada's Bombardier looks to raise cash from rail business - sources

A plane flies over a Bombardier plant in Montreal, January 21, 2014.Christinne Muschi

LONDON (Reuters) - Bombardier Inc is exploring a possible sale of all or part of its railway business, which bankers value at up to $5 billion, among options to pay for huge cost overruns in its aircraft business, sources familiar with the matter said.

The Canadian company is working with banks on strategic options for its transportation arm, including a possible initial public offering either in Germany, where the business is based, or in Britain, three sources said on Friday. They declined to be identified since the matter is private.

A merger with peers such as Germany's Siemens or France's Alstom could also be considered, one of the sources said, pointing to a tie-up between China's biggest train makers CNR and CSR Corp last year that put pressure on rivals to gain scale.

Bombardier's transport arm provides rail vehicles, signaling and control equipment. The sources said the discussions are in early stages and Bombardier may delay any action until potential buyers such as Alstom and Hitachi have finished wrapping up recent transactions.

Quebec Economy Minister Jacques Daoust told Reuters he had been assured by Bombardier's controlling family in a telephone call on Friday that the Montreal-based company would not sell the transportation division entirely and that other options were on the table.

The discussions come as Bombardier's aircraft business battles with overruns in cost and development for its new CSeries jet, which has sent the firm's stock down 38 percent this year.

Bombardier shares jumped as much as 7 percent on the Reuters report, before retreating to close at $2.64 on the Toronto stock exchange, still up 1.5 percent from the previous day.

Bombardier spokeswoman Isabelle Rondeau noted that the company has previously said it is interested in "participating in consolidation" and that many options were on the table.

"We're in no rush to do anything," she said. "We will act in a diligent and smart way to make sure that whatever we do will create value for our shareholders.

In February, the company suspended dividends, replaced its chief executive, took on new long-term debt and said it would issue new shares to shore up its finances.

Bombardier has more than $9 billion of long-term debt, according to documents from its most recent bond deal. Its market capitalization is about C$5.89 billion ($4.66 billion), giving it an enterprise value of about $13.7 billion.

POTENTIAL BUYERS BUSY?

Banking sources expect consolidation in the industry to continue as the sector remains fragmented.

Bombardier's transportation arm saw earnings before interest and tax (EBIT) of $486 million in 2014, down 3.7 percent from 2013.

The unit could appeal to rivals such as Siemens, Alstom, Hitachi or General Electric, the sources said. There was no immediate comment from the four companies.

Siemens and Alstom might face antitrust issues because of their dominant positions in Germany and France, said the sources.

Alstom is also currently busy with the 12.4 billion euro sale of its power equipment business to GE, and is unlikely to embark on a new deal before that is completed, said the sources.

Japan's Hitachi is also tied up after agreeing in February to acquire the rail business of Italian group Finmeccanica for 1.9 billion euros.

China's CNR and CSR Corp are not expected to seek further expansion in the near future.

GE separately said on Friday it will shed most of its finance unit to focus on its industrial business.

Additional reporting by by Robert Smith at IFR, Arno Schuetze in Frankfurt, Allison Lampert in Montreal and Allison Martell in Toronto; Editing by Sinead Cruise and Elaine Hardcastle in London

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