(The Montreal Gazette posted the following Canadian Press story by John Valorzi on its website on April 3.)
TORONTO — Bombardier Inc. is selling the recreational products division that launched the company more than half a century ago and is issuing new shares in a broad restructuring aimed at shoring up the ailing industrial giant’s finances and focusing on core operations.
In an “action plan” announced before markets opened Thursday, the Montreal-based company said it plans to:
– Raise up to $1.5 billion by selling the division that makes its popular Seadoo watercraft and the famed Skidoo snowmobiles that were the genesis of the company in the 1940s. The company’s controlling shareholder, the Bombardier family, intends to put together an investment group to bid for what the company called its “heritage” division.
– Divest other non-core businesses and offer up to $800 million in Class B shares on Canadian markets;
– Reduce its dividend and restrict the activities of its troubled Bombardier Capital subsidiary, a unit that provides financing to help with sales of its recreational products and airplanes.
– Change its corporate governance, amend its bank lending agreements and adopt new accounting policies to ease investor concerns about the company’s books and financial performance.
“We will rebuild our credibility with investors with the action plan we are announcing today,” said Bombardier CEO Paul Tellier, the no-nonsense former railway executive who took over the company’s helm in January and soon announced plans to cut 3,000 jobs.
“The sale of our recreational products business provides a good balance between our asset divestitures and the equity offering. Combined with our cost reduction programs, it gives us the financial flexibility we need going forward.”
Bombardier’s moves Thursday come as the company struggles to recover its balance after seeing its shares plunge in the last 18 months because of the worldwide slump in the airline industry, a major customer for the company’s regional aircraft. As well, the weak economy in the United States has lowered corporate demand for Bombardier’s business jets.
However, many analysts say there have also been as many nagging questions about Bombardier’s books and operations as the state of company’s slumping markets.
In announcing the company’s financial restructuring, Tellier also reported a net loss of $615.2 million or 47 cents a share for the 2003 fiscal year ended Jan. 31, which included a non-cash special charge of $1.3 billion.
That loss compared with a net profit of $36 million, or one cent a share for fiscal year 2002.
Revenues rose 8.5 per cent to $23.7 billion from $21.8 billion the previous year.
Tellier also announced that Bombardier generated free cash flow of $801.4 million last year and has an order backlog of $44.4 billion, which should put the company in good shape for recovery.
“I have now been at the head of this corporation for close to three months, and, in spite of the current uncertainties, I am confident that the fundamentals of our core businesses are sound,” said Tellier.
“We have good products, good people, loyal customers and good technology. We can also rely on a strong backlog of orders, which provides our manufacturing facilities with two to three years of work.”
Telllier added that “rigour and consolidation are the order of the day.”
“Tighter accountability and financial discipline are being applied across the corporation. Bombardier today is focused on value creation.”
Bombardier (TSX:BBD.B) said it has formed a committee of independent directors to supervise the divestiture of the recreational products division, which had $1.7 billion in revenues for the nine months ended Oct. 31, and employs just under 7,800 people.
“In order to help ensure the stability and continuity of this heritage asset, members of the Bombardier family have expressed an interest in participating in the process as part of an eventual group of investors seeking to acquire the recreational products business,” Bombardier said.