Bombardier and CDPQ enter into definitive agreement: CDPQ to acquire 30% of newly-created BT Holdco for $1.5 billion Français
- Transaction concludes review of financing options for the rail business
- Private placement in convertible sharesof BT Holdco
- Performance incentives to further drive improvement in execution at Bombardier Transportation
- Transaction to strengthen Bombardier's financial position
(All amounts in this press release are in U.S. dollars unless otherwise indicated. Non-GAAP measures are defined and reconciled to the most comparable IFRS measures in the Corporation's MD&A. See Caution regarding non-GAAP measures at the end of this press release.)
MONTRÉAL, Nov. 19, 2015 /CNW Telbec/ - Bombardier (Bombardier or the Corporation) today announced it has entered into a definitive agreement with CDPQ for a $1.5 billion convertible share investment in Bombardier Transportation's newly-created holding company, Bombardier Transportation (Investment) UK Ltd ("BT Holdco"). Under the terms of the agreement, CDPQ will acquireshares of BT Holdcoconvertible into a 30% common equity stake of BT Holdco, subject to annual adjustments related to performance. The transaction will be executed through a private placement and values Bombardier Transportation at $5 billion.The investment has been approved by the Boards of Directors of Bombardier and CDPQ.
BT Holdco will own all of the assets of Bombardier's current Transportation business segment, with its operational headquarters remaining in Germany. It will be governed independently by a new Board to be composed of seven members, three of which will be named by CDPQ. Alain Bellemare will chair the Board. Dr. Lutz Bertling, President, Bombardier Transportation, will continue in his current role.
The transaction concludes the review of financing options previously announced for Bombardier Transportation. As previously announced, Bombardier's Board of Directors examined a wide range of strategic options for its rail business. After a thorough review process, including an initial public offering and a competitive international auction process for the private placement of a minority stake, the Board of Directors of Bombardier determined the transaction announced today, contemplating the sale of 30% of Bombardier Transportation to CDPQ, is the most attractive option. The transaction announced today, when completed, will crystallize the value of Bombardier Transportation and strengthen Bombardier's financial position, with no increase in debt. The funds to be received by BT Holdco from the transaction will be distributed to Bombardier and Bombardier intends to use the proceeds for general corporate purposes.
"This investment by CDPQ, which has a long history as one of our major investors, is a testimonial to the growth potential of the rail industry and to Bombardier's leadership in seizing the opportunities this market offers on a global scale," said Alain Bellemare, President and Chief Executive Officer of Bombardier. "Bombardier and CDPQ have one common objective: leveraging Bombardier Transportation's innovative portfolio of products and services, engineering talent and worldwide presence to drive margin expansion," he added.
"Bombardier Transportation is a global leader in the rail industry, with a robust backlog, predictable revenues, and meaningful potential for growth. The strong performance incentives that are at the heart of this transaction and management's plan to improve execution have a single focus: creating more value at Bombardier Transportation," said Michael Sabia, President and Chief Executive Officer of CDPQ. "The hybrid investment instrument designed for this transaction allows our depositors to benefit from the improving performance of Bombardier Transportation with its equity-like features, while protecting their capital through its bond-like characteristics. This investment is structured with the goal of delivering double-digit returns," added Mr. Sabia.
Under the terms of the transaction, CDPQ is entitled to:
- the higher of
- the fair market value of its 30% stake in BT Holdco (on an as-converted basis),
- or a minimum return of 9.5%,
- both subject to the annual performance adjustments described below;
- in certain circumstances, based on the call option, the tag-along, drag-along and change of control rights, the higher of
- if applicable, the third-party offer for its stake (on an as-converted basis),
- or a minimum three-year 15% compounded annual return;
- at any time after three years after closing, if Bombardier buys back CDPQ's convertible shares, the higher of
- the fair market value of its stake (on an as-converted basis),
- or a minimum 15% compounded annual return; and
- voting rights (on an as-converted basis), being equal to 30% initially.
Performance incentives
The terms of the transaction provide strong performance incentives for Bombardier Transportation. For each of the first five years following the closing date, CDPQ's ownership (on conversion) and return may be subject to upward or downward annual adjustments, based on a performance target jointly agreed to as part of Bombardier Transportation's business plan.
If Bombardier Transportation outperforms its business plan, CDPQ's percentage of ownership on conversion of its shares decreases by 2.5% annually, down to a minimum threshold of 25%. In this circumstance, the convertible shares' minimum return also decreases from 9.5% to a floor of 7.5%.
Conversely, should Bombardier Transportation underperform relative to its plan, CDPQ's percentage of ownership on conversion of its shares will increase by 2.5% annually, up to a maximum of 42.5%over a five-year period. In this case, the convertible shares' minimum return also increases by 2.5% up to 12%.
Financial stability
Recognizing the importance of Bombardier's financial stability to the entire corporate group, the parties have agreed to a cash reserve threshold of at least $1.25 billion, based on a jointly agreed upon formula. In the event Bombardier's cash reserves fall below that level, the Board of Bombardier will create a Special Initiatives Committee composed of three independent directors acceptable to CDPQ, and responsible to develop an action plan to restore cash reserves above the threshold. The implementation of the plan, once agreed with CDPQ, will be overseen by the Special Initiatives Committee.
In addition, with respect to the nomination of any new independent directors of Bombardier, Bombardier will work collaboratively with CDPQ and seek to obtain CDPQ's agreement on the final candidate(s) recommended to the Board.
As part of the transaction, the Majority Holder (as defined in Bombardier's articles of amalgamation) of Bombardier has committed to fully support any action plan recommended by the Special Initiatives Committee and agreed to by CDPQ, as well as the new selection process for new independent directors of the Bombardier Board.
Overview of Bombardier Transportation
Bombardier Transportation is a global leader in rail technology. Its 39,700 employees set new standards in sustainable mobility by developing a wide range of transportation solutions, from complete trains to sub-systems, maintenance services, system integration and signaling. With its operations headquartered in Berlin, Bombardier Transportation has a very diverse customer base with products or services in more than 60 countries. It has an installed base of over 100,000 vehicles worldwide and a $30 billion order backlog.
Bombardier Transportation is growing and profitable, with a strong cash generation potential and no significant debt. Its financial performance in the recently concluded third quarter demonstrates that business fundamentals are sound and that it is making consistent progress. Over the first nine months of 2015, Bombardier Transportation achieved an EBIT of $342 million and an EBIT margin of 5.6 % year to date.
Other details of the transaction
Investment |
$1.5B investment through the issuance of voting shares of BT Holdco, convertible at the option of CDPQ, into common shares initially representing 30% of BT Holdco, subject to performance incentive adjustments. |
Seniority |
CDPQ's convertible shares are senior to BT Holdco common shares in right of payment. |
Approval rights |
CDPQ's approval will be required for certain actions and governance matters of BT Holdco such as:
CDPQ will benefit from these and other approval rights for as long as it holds at least a 10% interest in BT Holdco. |
Dividend rights |
CDPQ is entitled to its pro-rata portion (on an as-converted basis, initially equal to 30% of BT Holdco common shares) of any future dividends declared. Dividends payable in cash or, subject to certain conditions, in additional convertible shares at the option of BT Holdco (any such issuance to increase CDPQ's participation). |
Liquidity |
CDPQ has a right to trigger an IPO or a sale of BT Holdco shares at any time after 5 years. |
Call option |
Bombardier has the ability to buy back CDPQ's equity interest in BT Holdco within specified terms at any time on or after three years, at the higher of the fair market value (on an as-converted basis), or a minimum three-year 15% compounded annual return (or at any time after three years, a 15% compounded annual return). |
Right of first offer |
If either CDPQ or Bombardier seek to sell their stake in BT Holdco, it will first offer the other party the opportunity to acquire its stake at a cash offer representing the minimum sale price for a period of time. |
Tag-along rights |
If Bombardier seeks to sell all its equity interest in BT Holdco, CDPQ can require that its interest be sold for a consideration equal to the higher of the cash consideration under the third-party offer, or a minimum three-year 15% compounded annual return (or at any time after three years, a 15% compounded annual return). |
Drag-along rights |
If Bombardier seeks to sell all its equity interest in BT Holdco, it can require CDPQ to sell its interest provided that the cash consideration received by CDPQ must be equal to the higher of the cash consideration under the third-party offer, or a minimum three-year 15% compounded annual return (or at any time after three years, a 15% compounded annual return). |
Change of control |
Upon a change of control of Bombardier or, in certain circumstances, of BT Holdco, CDPQ has the right to require an IPO or a sale of BT Holdco shares and will receive the higher of the value of the common shares held by CDPQ on an as-converted basis, based on the implied value of the IPO or sale to a third party, as the case may be, or a minimum three-year 15% compounded annual return (or at any time after three years, a 15% compounded annual return). |
Information |
CDPQ is entitled to information relevant to Bombardier Transportation operations, financials and relationship with Bombardier. |
Closing conditions |
Subject to customary conditions precedent, including regulatory approvals, completion of the corporate reorganization and execution of the definitive ancillary documentation. Closing is expected to occur during the first quarter of 2016. |
Financial results |
BT Holdco's results will continue to be consolidated in Bombardier's financial results. |
Warrants |
The investment comprises the issuance by Bombardier to CDPQ of warrants exercisable for a total number of 105,851,872 Class B shares (subordinate voting) in the capital of Bombardier (Class B Shares), equivalent to a 4.5% ownership of all outstanding Class A shares (multiple voting) in the capital of Bombardier (Class A Shares) and Class B Shares (after giving effect to the exercise of such warrants) (and approximately 4.7% of the aggregate outstanding Class A Shares and Class B Shares on a non-diluted basis). The warrants will be exercisable for a period of seven years at an exercise price per Class B share equal to $1.66, the U.S. dollar equivalent of $2.21 CDN at the date of execution of the subscription agreement, which represents a premium to the 5-day VWAP of the Class B Shares on the Toronto Stock Exchange (TSX) as of October 16, 2015. The TSX has determined to accept notice of the private placement of warrants and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of the warrants on the TSX. Listing will be subject to Bombardier fulfilling all of the listing requirements of the TSX. The warrants will not be listed on the TSX, and will contain market standard adjustment provisions, including in the event of corporate changes, stock splits, non-cash dividends, distributions of rights, options or warrants to all or substantially all shareholders or consolidations. Security holder approval is required under TSX rules due to the fact that the warrants will be issued later than 45 days from the date upon which the exercise price was established, as set out in Section 607(f)(i) of the TSX Company Manual. Such approval has been obtained, as agreed with the TSX, by way of written consent of shareholders holding more than 50% of the voting rights attached to all of Bombardier's issued and outstanding shares. The investment was negotiated between Bombardier and CDPQ at arm's length and will not materially affect control of Bombardier. |
Joint investor and analyst call
Alain Bellemare, President and Chief Executive Officer, Bombardier Inc. and Michael Sabia, President and Chief Executive Officer, Caisse de dépôt et placement du Québec will hold a joint conference call intended for investors and financial analysts later today to review the details of the agreement.
DATE: |
Thursday, November 19, 2015 |
TIME: |
10:00 a.m., Montréal time |
A question period intended for the media will take place at the end of this same conference call. To participate, media representatives need simply identify themselves when they register for the call.
This conference call will be broadcast live on the Internet at the following address:
Media representatives wishing to listen in on the call will be able to do so by dialing one of the following conference call numbers:
Integral version: |
514 394-9320 or |
In English: |
514 394-9318 or |
In French: |
514 394-9316 or |
This press release does not constitute an offer to sell or the solicitation of an offer to buy securities in any jurisdiction nor will there be any sale of these securities in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such province, state or jurisdiction. This press release does not constitute an offer to sell or the solicitation to buy securities in the United States. The securities mentioned herein have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.
ABOUT BOMBARDIER
Bombardier is the world's leading manufacturer of both planes and trains. Looking far ahead while delivering today, Bombardier is evolving mobility worldwide by answering the call for more efficient, sustainable and enjoyable transportation everywhere. Our vehicles, services and, most of all, our employees are what make us a global leader in transportation.
Bombardier is headquartered in Montréal, Canada. Our shares are traded on the Toronto Stock Exchange (BBD) and we are listed on the Dow Jones Sustainability North America Index. In the fiscal year ended December 31, 2014, we posted revenues of $20.1 billion. News and information are available at bombardier.com or follow us on Twitter @Bombardier.
ABOUT CDPQ
Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at June 30, 2015, it held $240.8 billion in net assets. As one of Canada's leading institutional fund managers, la Caisse, which marks its 50th anniversary this year, invests globally in major financial markets, private equity, infrastructure and real estate. For more information about la Caisse: www.cdpq.com.
Forward-looking statement
This press release includes forward-looking statements, which may involve, but are not limited to: statements with respect to Bombardier's objectives, guidance, targets, goals, priorities, market and strategies, financial position, beliefs, prospects, plans, expectations, anticipations, estimates and intentions; general economic and business outlook, prospects and trends of an industry; expected growth in demand for products and services; product development, including projected design, characteristics, capacity or performance; expected or scheduled entry-into-service of products and services, orders, deliveries, testing, lead times, certifications and project execution in general; competitive position; and the expected impact of the legislative and regulatory environment and legal proceedings on Bombardier's business and operations; Bombardier's available liquidities and Bombardier's ongoing review of strategic and financial alternatives, the completion of the transaction with CDPQ and the use of proceeds therefrom; the impact and expected benefits of the transaction with CDPQ on Bombardier's operations, infrastructure, opportunities, financial condition, access to capital and overall strategy; the capital and governance structure of BT Holdco following the transaction with CDPQ; statements regarding the growth potential of the rail industry and Bombardier Transportation's business fundamentals; the statement that the transaction with CDPQ will crystallize the value of Bombardier Transportation and strengthen Bombardier's financial position, with no increase in debt; the stated objective of leveraging Bombardier Transportation's innovative portfolio of products and services, engineering talent and worldwide presence to drive margin expansion; statements regarding Bombardier Transportation's potential for growth and strong cash generation potential and progress; statements regarding management's focus of creating more value at Bombardier Transportation and improving performance of Bombardier Transportation; the goal of the structure of the investment of delivering double-digit returns; statements regarding Bombardier's financial stability and cash reserve threshold; the receipt of required third party, regulatory and other approvals; and the anticipated timing thereof. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "anticipate", "plan", "foresee", "believe", "continue", "maintain" or "align", the negative of these terms, variations of them or similar terminology. By their nature, forward-looking statements require management to make assumptions and are subject to important known and unknown risks and uncertainties, which may cause actual results in future periods to differ materially from those forecasted. While management considers these assumptions to be reasonable and appropriate based on information currently available, there is risk that they may not be accurate. Certain important assumptions by management in making forward-looking statements include, but are not limited to: the completion of the corporate reorganization to form BT Holdco; the satisfaction of all conditions to the completion of the transaction with CDPQ; the receipt of required third party, regulatory and other approvals, and Bombardier's ability to consummate the transaction with CDPQ. For additional information with respect to the assumptions underlying the forward-looking statements made in this press release, refer to the respective Guidance and forward-looking statements sections in Aerospace and in Transportation in the Management's Discussion and Analysis (MD&A) of Bombardier's financial report for the fiscal year ended December 31,2014.
Certain factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include, but are not limited to, risks associated with general economic conditions, risks associated with Bombardier's business environment (such as risks associated with the financial condition of the airline industry and rail industry, political instability and force majeure), operational risks (such as risks related to developing new products and services; fixed-price commitments and production and project execution; doing business with partners; product performance warranty and casualty claim losses; regulatory and legal proceedings; the environment; dependence on certain customers and suppliers; human resources), financing risks (such as risks related to liquidity and access to capital markets, retirement benefit plan risk, exposure to credit risk, certain restrictive debt covenants, financing support provided for the benefit of certain customers and reliance on government support); the conditions to completion of the transaction with CDPQ not being satisfied; failure to receive third party, regulatory and other approvals; changes in the terms of the transaction with CDPQ; and market risks (such as risks related to foreign currency fluctuations, changing interest rates, decreases in residual values and increases in commodity prices). For more details, see the Risks and uncertainties section in Other in the MD&A of Bombardier's financial report for the fiscal year ended December 31, 2014. Readers are cautioned that the foregoing list of factors that may affect future growth, results and performance is not exhaustive and undue reliance should not be placed on forward-looking statements. The forward-looking statements set forth herein reflect management's expectations as at the date of this press release and are subject to change after such date. Unless otherwise required by applicable securities laws, Bombardier expressly disclaims any intention, and assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
Caution regarding non-GAAP measures
This press release is based on reported earnings in accordance with International Financial Reporting Standards (IFRS). Reference to generally accepted accounting principles (GAAP) means IFRS, unless indicated otherwise. This press release is also based on non-GAAP financial measures including EBITDA, EBIT before special items and EBITDA before special items, adjusted net income, adjusted earnings per share and free cash flow. These non-GAAP measures are mainly derived from the interim consolidated financial statements but do not have standardized meanings prescribed by IFRS; therefore, others using these terms may define them differently. Management believes that providing certain non-GAAP performance measures, in addition to IFRS measures, provides users of our interim financial report with enhanced understanding of the results and related trends and increases the transparency and clarity of the core results of the business. Refer to the Non-GAAP financial measures and Liquidity and capital resources sections in Overview and each reporting segments' Analysis of results sections in the Corporation's MD&A for definitions of these metrics and reconciliations to the most comparable IFRS measures.
SOURCE Caisse de dépôt et placement du Québec
Isabelle Rondeau, Director, Communications, Bombardier Inc., +1 514 861-9481; Yan Lapointe, Manager, Investor Relations, Bombardier Inc., +1 514 861-9481; CDPQ : Maxime Chagnon, Senior director, Media Relations, +1 514 847-5493, [email protected]
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