MONTREAL – Shares in Bombardier Inc. (TSX:BBD.B) soared more than 22 per cent in heavy trading Wednesday as investors reacted to reports that a Chinese company had made an offer to buy the Quebec-based company’s rail division.
After falling this summer to two-decade lows, Bombardier shares closed up 27 cents at $1.46 on the Toronto Stock Exchange. Volume of 34.5 million shares, more than three times the issue’s daily average, made it by far the most active
Company spokeswoman Isabelle Rondeau declined to specifically comment on a Reuters report that Beijing Infrastructure Investment had proposed buying up to 100 per cent of Bombardier Transportation for between US$7 billion and US$8 billion, including debt.
“We are studying various options, including a potential participation in the industry consolidation taking place in the (rail) industry,” she said in an interview. “(But) Bombardier Transportation is not for sale.”
Bombardier has said it is looking at spinning off a minority stake in the Berlin-headquartered division this year.
Beijing Infrastructure, a government agency that operates 18 subway lines in Beijing, reportedly made the offer in an Aug. 14 letter to Bombardier chairman Pierre Beaudoin.
The offer was reportedly rejected by Louis Veronneau, the company’s vice-president of mergers and acquisitions.
Analyst David Tyerman of Canaccord Genuity described the Chinese offer as “reasonable,” adding he wasn’t surprised by Bombardier’s response.
“Bombardier has consistently suggested that it wants to IPO a minority interest in Bombardier Transportation later this year. Still, we think the Beijing Infrastructure offer suggests a reasonable valuation range for Bombardier Transportation in an initial public offering.”
Chris Murray of AltaCorp Capital said the implied price of the railway division is higher than his estimate of US$6.1 billion before debt.
“Overall, we believe that the market should react positively to the news given the additional clarity around Bombardier Transportation’s fair value,” he wrote in a report.
Murray believes Bombardier is looking to sell a 20 to 30 per cent stake in the rail division and that selling a majority stake to a Chinese state-owned company in an election year could lead to regulatory complications in Canada and difficult approvals in other jurisdictions, including the European Union and China.
Earlier media reports suggested Bombardier had received an offer from Chinese railway giant CRRC Corp.
Bombardier is expected to use proceeds from a public offering to offset aerospace development costs, including the CSeries commercial jet program whose price tag has ballooned to US$5.4 billion, and the planned Global 7000/8000 business jets that are two years late.
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