May 8, 2015 / 7:34 PM / in 3 years

Exclusive: Bombardier eyes 20-30 percent rail unit IPO in Frankfurt - sources

FRANKFURT/TORONTO (Reuters) - Bombardier Inc (BBDb.TO) is aiming to sell a 20- to 30-percent stake in its rail unit via an initial public offering in Frankfurt as early as October, said three sources familiar with the matter on Friday.

Bombardier Inc.'s Pierre Beaudoin (R), executive chairman of the board, and Alain Bellemare, president and chief executive officer, and arrive for the company's annual general meeting in Montreal, May 7, 2015. REUTERS/Christinne Muschi

The planes and trains maker unveiled broad plans to list a minority stake in Bombardier Transportation (BT) a day earlier but gave few details.

The sources, who asked not to be named as the plans are still private, said the listing in Germany, where the rail unit is headquartered, will allow the Canadian firm to put a firm valuation on the business ahead of a potential stake sale or joint venture.

Bombardier’s Chief Executive Alain Bellemare told Reuters on Thursday that an IPO, when completed, will preserve Bombardier’s flexibility to look at “some type of partnership, or investment in BT” down the road.

The industry is in the midst of consolidation, as big players team up to boost their ability to compete on major rail infrastructure projects across the globe.

China’s top two trainmakers China CNR Corp Ltd 601299.SS and CSR Corp Ltd (601766.SS) are merging to create the world’s biggest rail conglomerate in terms of sales. And in February, Hitachi Ltd (6501.T) agreed to acquire Italian aerospace and defense group Finmeccanica’s SIFI.MI rail arm in a bid to strengthen its position in Europe.

“Taking advantage of hot markets and doing an IPO now clearly makes it easier for them to consider options in future,” said a European source familiar with the matter. “Also a listed company has a clear market price in case a suitor comes along.”

The source said Bombardier wants to be ready for a market debut in October but that the IPO is more likely to take place in December.

A North American banking source said the move to list in Europe is also a play on a recovery in the European economy as countries boost investment on infrastructure projects.

Another European source following the IPO plans said given a roughly $5 billion valuation for the business, a 30 percent stake at a 10 percent discount would mean that Bombardier could raise about $1.3 billion through the process.

Bombardier declined to comment.

Reuters reported in April that Bombardier was looking to raise cash from the rail business as it grappled with cost overruns in its aircraft division. China’s CNR and CSR had been in discussions with Bombardier about possibly buying a controlling stake in the rail unit, once they complete their own merger, sources told Reuters.

Bombardier, whose presence in China goes back to 1954, has a number of rail joint ventures in the country, three of them with CNR and CSR units.

A Chinese bid could face political opposition in Canada, which is due to hold a general election in October.

Bombardier’s Bellmaire, asked whether a partial sale to a Chinese train maker, Germany’s Siemens (SIEGn.DE) or other consortium would be politically feasible, said on Thursday that it should be.

“It could be an antitrust issue, I give you that, but I don’t see why politics would have a say in us making a smart, strategic business decision,” he said.

Bombardier acquired a large chunk of the rail business through its purchase of Adtranz from DaimlerChrysler in 2001.

Additional reporting by Allison Martell in Toronto; Editing by Amran Abocar and Christian Plumb

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