Bombardier Inc - It's Real Value - by Sylvain Faust
How Much Longer Would the Bombardier/Beaudoin Family Last Trying to Keep Total Control?
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14:35 - October 16, 2017 - Quebec, Canada
By Sylvain Faust
How is a real value reached? By the best offer you actually receive! Nothing else…
All the other methods used to obtain a fair market value (FMV), to arrive at a valuation just goes down the drain until you actually receive offers.
Bombardier Inc. real valuation always was a problem. Why?
Let me ask you a question, what is the real value of something that the owner will never sell? That's the case with Bombardier Inc., it cannot be sold. Why? The Bombardier-Beaudoin family has over 50% of the voting control of the ownership of the Company and they won't sell.
"As stated in the 2017 Management Proxy Circular, as at March 14, 2017, Mr. J. R. André Bombardier, director of the Corporation, and Mses. Janine Bombardier, Claire Bombardier Beaudoin and Huguette Bombardier Fontaine (collectively, the "Principal Shareholders") indirectly controlled, through holding companies, 249,449,910 Class A shares and 30,211,319 Class B subordinate voting shares, representing in the aggregate 79.47% of the issued and outstanding Class A shares and 1.56% of the issued and outstanding Class B subordinate voting shares of the Corporation and 49.78% of all the voting rights attached to all of its issued and outstanding voting shares. In addition, members of the immediate family of the Principal Shareholders currently exercise control or direction over 17,413,275 Class A shares and 821,577 Class B subordinate voting shares, representing 0.81% of all the Class A shares and Class B subordinate voting shares issued and outstanding and 3.45% of all the voting rights attached to all the shares of the Corporation."
Meaning 49.78 + 3.45 is 53.23… The "family" has control over 53% of the total vote but only 13% of the shares of Bombardier Inc.
The family owns 13% of Bombardier Inc. or approximately 297,896,081 shares over a total of 2,250,514,934 shares.
Multiple times they stated that never Bombardier Inc. would be sold. Trying to honor the founder's principle I suppose. Not to let go control of the company to a potential foreign owner, trying to protect as much as possible local jobs, technology assets while at the same time having investments around the world necessary to remain competitive, but keeping the total control.
Here's the reality check.
At 53% of the vote the "Family" is facing the reality that the company can no longer issue new shares to obtain new money to finance its new projects, or issuing new shares to a potential strategic partner taking in a part of Bombardier Inc. in exchange of money into the company bank account (not the shareholders) without a dilution of the vote, i.e. taking the family voting power below 50%.
That's a major handicap impacting the future of the company all the other shareholders.
Over the last two years Bombardier Inc. had to resort to sell portion of its asset instead of issuing shares of the corporation, you now know why. The family decided to sell 30% of Bombardier Transportation division. That 30% was sold to "Caisse de dépôt et placement du Québec" (with an option to buy it back but with the payment by Bombardier Inc. of a certain minimum return and annual interest rate in the meantime). Bombardier Inc. did not have to issue new shares; the vote did not change at Bombardier Inc. The consequence was that the shareholders of Bombardier Inc. as a whole now own 70% of Bombardier Transportation in exchange of new money in the company bank account.
The same with CSeries,
Bombardier Inc. sold 49% to Quebec Government allowing the company to add more money in its bank account once more without issuing any share of the company. The consequence, Bombardier Inc. shareholders remain the same but now only own 50% of the CSeries. The family kept its total control over Bombardier Inc.
- A Side note: Quebec Government no longer owns 49% but 20.5% less, or roughly 39% of the CSeries Holding and this is going lower each month (yes 49 – 20.5% is 39 ;-) . Why? I did explain this before (The "Call Option" - Bombardier vs La Caisse & Government of Quebec ). Bombardier Inc. as of now owns about 61% of the CSeries Holding, and it's increasing.
You understand why all of these rather complicated transactions happened?
Just so the "Family" does not lose total control over their voting power over Bombardier Inc. They are stuck with the reality where the company can no longer issue new shares, stuck in a position not allowing welcome a new partner at the top level since this would chop the family voting power, losing total power over the vote, over Bombardier Inc.
You now also understand why Bombardier Inc. was not able to come to an agreement with Siemens into a merge of its Transport division, the family wanted to have control (>50% of vote) of the newly merged groups. Not something Siemens was comfortable with in light of the last few years family track record, the very high debt level they put the company into, almost having to declare bankruptcy.
Trying to remain the King at all cost is not necessary good for your kingdom and your subjects.
Sometimes, a situation like this, like the family keeping control, is not really an issue for the financial market, allowing some specific individuals or group to remain in control, not to dilute their power, believing in their strong management capacity and especially vision about the future of the company. That's a why the B shares were created. One B share has 10 times less voting power than an original A share, the type of shares the family has lots of. The financial market was OK with this, buying them in their investment funds and pushing them to you (oops I mean "promoting" them?) helping Bombardier Inc. in raising new money (or working capital as it is) to finance the Beaudoin/Bombardier projects and visions. It worked for a while.
As long those individuals do deliver, it might be a fine thing.
But in the last few years, with Laurent Beaudoin leaving the CEO job, with the bad management of the CSeries project with a budget overrun of about 50% ($6 billion instead of $4 billion), the very bad market development strategy of the CSeries from early on, not being able to manage the delivery of the Toronto street carts (bad public relations), etc… but on the top of that… to have brought Bombardier Inc. on the threshold of a total bankruptcy…
Why in the world would you want to leave those same individuals in charge of the higher directions and decisions over Bombardier Inc? Why would you want to have shares of this company?
Either Bombardier Inc. tries to pull the same trick with some of its Commercial Aircraft Division, in parts (Q400, CRJ, CSeries) or all of it, by letting another third party, strategic or not, to come in and purchase a portion of it, bringing new cash to Bombardier Inc., still by not issuing any new shares, keeping the Family in charge and total power and removing from the company ownership more assets (where would this end), or with a total sellout the Commercial Aircraft division?
Really, still, this does no good to the future of Bombardier Inc. leaving the Family in charge of its higher direction while selling the furniture, the refrigerator too?
I do not see Bombardier Inc. making any strategic transaction involving the family into losing their total power, control over the company. I do not see the family having the gusts for this, to have to debate their ideas, vision and top management decision with partners of equal power… they are not used to this.
What is Bombardier Inc. real value… on top of its assets, subtracting its $9 billion debt… what's left? The tree most important things in a company, i.e. 1- Management, 2- Management, 3- Management… No one can see the family doing what's right for the company. Everything is around having them keeping total control of it, that's it.
Until that attitude changes, opens up… Bellemare and his team are stuck to work under this very constraining business development limitation… providing no real cash without selling its assets, no partners, no new vision or opportunity…
Who could be interested? It depends what Bombardier Inc. is really offering.
Selling a whole division? China offered about $8 billion to acquire Bombardier Transport division recently.
- China May Return with a New Higher Offer for Bombardier Transport
- Exclusive: Bombardier rejects Chinese offer for railway unit - documents
The family said no thank you. It's not because no one is interested, the family just did not want to let it go. They could have paid almost 100% of its debt while keeping 100% of Bombardier Commercial Aircraft and Business Aircraft, money to push the CSeries correctly, the Global 7000+8000 sooner, maybe fixing the Learjet 85 structure and parts production, etc. What is the family's vision?
Now Bombardier Inc. owns 70% of Bombardier Transport with the same level of debt as before, high interest payments to the Caisse de Dépot as part of the "deal" into selling 30% of Bombardier Transport base on a valuation around $5 billion. I'm still thinking over this one when China "first offer" was around $8 billion (and certainly could have been more).
That's the beauty when you have overs 50% of the vote, having total power… You can't be voted out! You can't be fired!
The idea of Bombardier Inc. selling their Q400 commercial aircraft, 100% of it, might be interesting cash wise in the short them. This would be great for the family in keeping their total voting power since not issuing any shares, but that would confirm that the company is in bad shape financially. A partnership should prove to be a lot wiser, but it depends with who, under what conditions. Rostec wanted to build a Q400 factory in Russia (that's before the Ukraine, see Bombardier's $3.4-billion Russian deal in peril) . China could want to do the same having a huge market for such a plane, fast, high altitude, a workhorse. TATA of India as well among others. Same for a rather excellent regional jet (CRJ) currently available in three different sized, CRJ-700, CRJ-900 and CRJ-1000. The CSeries would also fit perfectly for those fast developing countries… At the end of the day, you get the picture, the whole Bombardier Commercial Aircraft division could be a nice investment, but a total takeover, no… A buyer would need the rest of the company, working on new aircraft and technologies, here's why a partnership at some level, partly acquiring the division makes more sense. A partner that would not only bring money but also provide strong market development and a strong impact on its sales.
Bombardier Inc. has great assets. The first one is their people, their employees and the technologies it developed.
How will the family manage this? Could they ever accept to be challenged at the board level? This could be the way of having Bombardier Inc. real value revealed and increased based on its future plans.
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