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The "Call Option" - Bombardier vs La Caisse & Government of Quebec
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11:30am - Montreal, February 17 2016
This morning during the latest Bombardier conference call there was a mention about the "Call Option" with the government of Quebec ownership in the CSeries program.
As I've been "assuming" since day one, Bombardier has the right to "Buy Back" that participation to totally own the CSeries again. This is simply done by paying back to Quebec the $ investment made in the CSeries by the government. Also, Quebec government will keep the issued warrants having the options to buy in the future BBD.B shares at strike/fixed price of $2.21, very interesting when the price goes back above this point. Why "assuming"? Because I would have done the same!
This way, Bombardier recovers 100% of ownership over the CSeries. But more on this below in a second...
As for the investment made by "La Caisse de dépot et placement du Québec" in Bombardier Transport (La Caisse is already the second largest shareholder in Bombardier Inc with BBD.B and BBD.A shares), this investment also has a "Buy Back" option for Bombardier. To gain back 100% of its Transport division, Bombardier has to reimburse the investment made by The Caisse added with a 15% interest compounded annual return. Meaning? If the business goes as plan, a better offer than La Caisse comes in (merge with another transport company?) and Bombardier wants to have its entire division back to take advantage of the future higher value, it can buy it back! Nice work!
Now, back to the CSeries deal with Quebec, what does it mean? Basically, it provides cash to the company that it seems it does not need?? (CS500?) Also, as part of this deal, and prior to it in the Closing, Bombardier Inc. is keeping all the CSeries already accumulated lost (using a "write down", simply an accounting process). This allows the company to save on future income taxes, to apply it to its profits diminishing the amount of income taxes it would pay, when making a profit. Also, as you might know, the CSeries will still lose money this year with the expenses related to the first few aircrafts, the new factory ramping up, etc. (about CDN$500K in 2016), Bombardier does not have to share any CSeries profit with Quebec since there are none "for now". I'm assuming that the lost (paid using Bombardier's pocket) would be seen as an investment in the new CSeries company, increasing the Bombardier participation (paid in new shares and diluting Quebec's ownership) or seen as a loan to the CSeries new company made by Bombardier Inc. A detail, but still an interesting one…
When the time comes CSeries is profitable, using the Call Option, Bombardier would be able to "buy back" the government's participation if desired, stopping the sharing of the profits to come, as Pratt & Whitney recently done reimbursing it's loan to the government where it was associated with a profit sharing clause! Why is this good for Quebec? Everyone gets what it wants... I don't have to explain to you what it means to keep this company in Quebec and "Up and Running" (oops, "Flying and Rolling")… (Bombardier Commercial Aircraft, Bombardier Business Aircraft, and Bombardier Transport… 3 companies within one, do you really understand them, made the difference?).
I'm assuming a deal with the Canadian government to have such a similar clause/mechanic, cash in exchange of a callable equity ownership into the CSeries, allowing further investment in Canada by Bombardier.
At the end of the day, as always, investments (not given money as I head) made by the governments into Bombardier have always been paid back. Also, it means that the new management at Bombardier is really taking care of business! More to come I'm sure… Transformation and Adaptation is Key to Survival!
(As I wrote already "... here's where "reality" comes in--, and as I learned from Charles Darwin's theory of evolution. "Adaptation", you see, is the key to any measure of success in the quest for survival. If you want to succeed, indeed, if you just don't want to be eliminated, nor declared dead, with your race, or company, extinct. (In case you don't have a clue on what I'm talking about here, no problem, you know I'm here to help as always. Simply go ahead and order this book "Who Moves My Cheese" by Spencer Johnson, it should be fun ;-)."
More here: http://www.fliegerfaust.com/cseries-ftv5-is-painted-ftv6-i-774946471.html
To all the employees at Bombardier, I'm very proud of what you're building at Bombardier around the Wold! Be proud of your work! We should ALL be, as Canadian, aviation enthusiasm around the world, suppliers, customers, and shareholders... (if you live in Quebec, or have some money in some funds, pension funds… Remember, The Caisse and the Quebec government, they are "You!" if you live in Quebec).
