MONTREAL — Bombardier Inc. (TSX:BBD.B) has signed a deal that will see the Caisse de depot et placement du Quebec invest US$1.5 billion in the company for a stake in its rail business.
Under the agreement, the Caisse will receive shares that will be convertible into a 30 per cent stake in a newly created holding company for Bombardier Transportation.
Bombardier says the deal concludes its review of options for Bombardier Transportation, which sells subway cars and other mass transit systems.
“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,” Bombardier chief executive Alain Bellemare said in a statement.
“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.”
Bombardier has been struggling to complete development of its new CSeries passenger jet which is over budget and behind schedule.
Last month, the Quebec government agreed to give Bombardier US$1 billion to help complete development of the CSeries in exchange for a 49.5 per cent stake in that project.
The investment announced Thursday includes terms that give the Caisse a minimum return of 9.5 per cent as well as provisions tied to the performance of Bombardier Transportation.
“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,” Caisse chief executive Michael Sabia said in a statement.
If the business does better than its plan, the Caisse’s stake on conversion of its shares decreases by 2.5 per cent per year, down to a minimum of 25 per cent. The convertible shares’ minimum return also falls from 9.5 per cent to a floor of 7.5 per cent.
However, if Bombardier Transportation underperforms the Caisse’s stake on conversion of its shares will increase by 2.5 per cent per year, up to a maximum of 42.5 per cent. The convertible shares’ minimum return would increase up to 12 per cent under those circumstances.
The deal values the rail business at $5 billion.
The new holding company will be governed independently by a new board to be composed of seven members, three of which will be named by the Caisse.
Bellemare will be chairman and Bombardier Transportation president Lutz Bertling will continue in his current role.
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