No smooth track to China for Bombardier
TAKEOVER RUMOURS
China’s two biggest trainmakers are reportedly considering a bid to take a controlling stake in Bombardier Inc.’ s railway unit, but the deal would likely face considerable opposition — not the least of which would come from Bombardier itself.
“Bombardier Transportation is not for sale,” spokeswoman Isabelle Rondeau said in an email Wednesday, responding to reports that Chinese companies CSR Corp. and CNR Corp. are interested in acquiring a majority of the business.
Rumours about the division’s future have been swirling since February, when Bombardier said it was evaluating “industry consolidation” opportunities. At the time, then-CEO Pierre Beaudoin hinted that any consolidation would likely involve the company’s trainmaking unit, as the aerospace business continues to struggle with bringing the troubled CSeries to market.
“We will not comment on any public speculation as to what may or may not happen as a result of this evaluation,” Rondeau said Wednesday.
The latest rumours, first reported by Reuters, come as CSR and CNR are in the midst of finalizing their own US $ 26billion merger. Beaudoin said in February that the megadeal required Bombardier to rethink its competitive position in the sector.
“As the world leader in this category before the merger, we need to ask ourselves how we can best position ourselves for the long term,” he said. “Is there a consolidation opportunity?”
Any deal involving majority control by a foreign buyer is likely to face political opposition, although the fact that the division is headquartered in Berlin could make it an easier sell than a takeover of the Montreal-based aerospace business.
In a statement issued April 10, Quebec economy minister Jacques Daoust expressed relief after Beaudoin, who is now the company’s executive chairman, assured him that Bombardier Transportation is not for sale.
“Bombardier is a company which makes Quebecers feel proud all over the world,” Daoust said. “I am very happy with the confirmation I got from the company this morning that it won’t sell its transportation division. This is excellent news for the company’s workers, but also for all Quebecers.”
The Quebec government has historically been hostile to foreign acquisitions. In 2012, finance minister Raymond Bachand called hardware retailer Rona Inc. a “major strategic asset for Canada,” effectively declaring it off-limits in the midst of a takeover attempt by U.S.-based Lowe’s Companies Inc.
Whether a Chinese acquisition of Bombardier’s railway division would face the same opposition would depend on the details, said Yvan Allaire, executive chairman of the Montreal-based Institute for Governance of Private and Public Organizations.
“I think it would depend on how it’s framed,” Allaire said in an interview. “The Quebec government would look at the actual deal — if there is a deal — and whether they are hostile or negative towards it would depend on the nature of the transaction.”
A Chinese takeover is also likely to trigger a review under the Investment Canada Act, although Industry Canada spokesman Jake Enright said he couldn’t comment on speculation.
As long as Bombardier supported the takeover offer, the deal would probably be approved by Ottawa, said Neil Campbell, co-chair of the competition and international trade law groups at McMillan LLP.
“This deal is not going to happen unless Bombardier becomes a willing seller, but if you have a willing seller then some of the reasons for potential opposition are likely to go away,” Campbell said.
Passing the review would be “a challenge, but doable,” according to a prominent foreign investment lawyer who asked not to be named.
However, there is also a “strong likelihood” that a deal with the Chinese would have to undergo a national security review, the lawyer added.
“There is little public information about national security reviews,” he said in an email. “The government has confirmed that at least one investment has been rejected (in the telecommunications sector) but from personal experience I can tell you that other transactions have been rejected and others withdrawn in the face of government concern.”