Bombardier selling unit to bolster credit

THE BALTIMORE SUN

MONTREAL - Bombardier Inc., the world's third-biggest maker of commercial jets, agreed yesterday to sell its snowmobile and boat unit for C$1.23 billion ($880 million) to a group that includes the founder's family and Bain Capital LLC, taking another step to preserve the company's credit rating.

The Bombardier family will keep 35 percent of the business, which was created about 61 years ago in Quebec to mass-produce the "snow vehicle" Joseph-Armand Bombardier invented.

Boston-based Bain Capital will get 50 percent and Canada's biggest pension-fund manager will hold 15 percent, the group said in a statement. The family controls Bombardier with 58 percent of the voting rights and a 17 percent stake.

Bombardier said the sale will be completed by "mid-fall."

Bain Capital, a buyout firm founded by Massachusetts Gov. Mitt Romney in 1984 when he was a management consultant, has more than $16 billion in assets. Last year, the firm and its partners bought the Burger King restaurant chain from Diageo PLC.

The sale of the unit, which makes Ski-Doo snowmobiles and Sea-Doo boats, will complete Bombardier Chief Executive Officer Paul Tellier's plan to raise as much as C$2.3 billion by selling stock and assets to preserve the company's debt rating. Bombardier's long-term debt is rated the lowest investment grade by Moody's Investors Service and Standard & Poor's.

"Their credit rating is pretty safe for now," said Cameron Doerksen, an analyst at Dlouhy Merchant Inc. who has a "hold" rating on Bombardier's shares and doesn't own any. "If anything, there could be a ratings upgrade at some point in the future."

Besides increasing borrowing costs, a fall in the rating to so-called junk status could have forced the company to reimburse as much as C$281.5 million in advances from customers.

Tellier, who once ran Canadian National Railways Co., replaced Robert Brown in January, after a 68 percent drop in the value of Bombardier's stock last year as investors lost confidence. By March, Tellier began announcing plans to cut jobs, issue stock, sell assets and change the company's accounting.

"Tellier laid down a path and followed it, and people like to see that," said Andrew Martyn, a money manager with Davis-Rea Ltd., which owns Bombardier shares and manages the equivalent of $260.3 million. "They're on the road to recovery, which is refreshing. This will bring people back to the stock."

Shares of Bombardier, which were down about 6 percent this year, rose 37 Canadian cents, or 7.4 percent, to C$5.39 in Toronto Stock Exchange trading yesterday.

Tellier, who agreed to an annual salary this fiscal year of C$1.9 million, holds options to purchase as many as 1 million of Bombardier's Class B shares, according to a regulatory filing.

The company also disclosed its fiscal second-quarter financial results yesterday. Its profit from continuing operations, which excludes results from the recreational unit, rose to C$96 million, or 5 cents a share, in the three months that ended July 31, from a restated C$43.3 million, or 2 cents, a year ago. Sales were unchanged at C$5.27 billion, the company said.

The profit increased because of higher costs last year to write down the value of used business jets.

Including results from the recreational business, Bombardier said it had net income of C$93.2 million, or 5 cents a share, up from C$68 million, or 4 cents, in the year-earlier period. Earnings per share met the average estimate of eight analysts surveyed by Thomson First Call.

The recreational unit, headed by Michel Baril, is being sold to a corporation formed by Bain Capital, members of the Bombardier family and the Caisse de depot et placement du Quebec, Bombardier said. The business had C$138.4 million in profit before taxes last fiscal year on sales of C$2.5 billion.

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