(The Globe and Mail posted the following story by Bertrand Marotte on its website on June 11.)
MONTREAL — The Bombardier family is not about to loosen its grip on voting control of the troubled company, chairman Laurent Beaudoin made clear to shareholders yesterday.
The dual-class share structure, under which the family owns a majority of the multiple-vote class A shares but a minority of the widely held class B stock, has been a huge plus for the Montreal-based firm, Mr. Beaudoin insisted at the annual meeting.
“The Bombardier family is and intends to remain the corporation’s majority shareholder by continuing to hold class A and class B shares. We are convinced that the interests of all shareholders will thus be better served and protected,” he said in his speech.
His comments were followed by a flurry of questions and remarks from shareholders, some of whom lost no time attacking everything from Bombardier Inc.’s flagging share price and the turnaround abilities of chief executive officer Paul Tellier to executive pay levels and “indecent” executive stock options.
It was Mr. Tellier’s first annual meeting since leaving as chief of Canadian National Railway Co. late last year to take on the challenge of returning Bombardier to the profitability of its glory days. The company faces a possible debt downgrade to junk bond status if it fails to maintain adequate cash flow levels in a still-uncertain market for its regional and corporate jets.
Also yesterday, Bombardier was dealt a blow when low-fare U.S. airline JetBlue Airways Corp. announced a $3-billion (U.S.) deal for 100 mid-size regional jets from Embraer SA of Brazil — Bombardier’s archrival — with an option for 100 more.
Mr. Tellier, who was recently reported as saying a review of the dual-share system might be in order — particularly with a view to a stock market listing in the United States — said after the meeting that he is “perfectly comfortable” with the position outlined by Mr. Beaudoin.
“There was a perception that Bombardier was about to change that and Bombardier is not going to change that. This is not going to happen,” he said.
He said Bombardier’s board backed the decision not to alter the share structure and said it was time to publicly put a stop to speculation it might happen.
Companies with dual classes of shares are increasingly frowned upon, particularly by institutional investors, in North America.
Dual-share companies are not prohibited from listing on the New York Stock Exchange, where Mr. Tellier would like to list, but a single-class share structure is viewed as making a stock more attractive to investors, particularly the big U.S. portfolio managers.
“It’s very much an issue,” said a stock picker with one of the bigger U.S. funds who knows Bombardier well. “It’s like taxation without representation. There’s a reluctance by a lot of people to buy dual classes and rightly so. Shareholders are unfairly being taken advantage of.”
In a spirited defence of family-owned companies, Mr. Beaudoin — who married into the Bombardier family and eventually rose to CEO and whose son, Pierre, now heads the aerospace division — told shareholders that “the existence of two share classes in no way hinders the sound management of the corporation, commonly referred to as governance.”
The family has maintained an “unwavering commitment” over almost 40 years to the company’s growth and resisted “the lucrative offers to buy Bombardier, offers that would have forever smothered all hopes of building a large-scale industrial complex” based in Canada and headquartered in Canada, he said.
Mr. Beaudoin told reporters afterwards that a successful bid by the family and its partners for Bombardier’s legacy recreational products division would in no way mean the family will move to abandon its role as majority shareholder in Bombardier Inc.
The two are not linked, he said.
The family, led by the four surviving children of snowmobile inventor and company founder Joseph Armand Bombardier, is part of a group that is one of six bidders short-listed for the recreational products unit.
The unit, expected to fetch more than $1-billion, is just one of the assets put on the block by Mr. Tellier in his sweeping recapitalization plan.
Mr. Beaudoin said proof that the family’s interests are aligned with those of all shareholders is the “emotionally very difficult decision” in agreeing to the sale of recreational products — “the origin of Bombardier — in order to strengthen its financial position.”
Bombardier also announced yesterday that it has sold its military aviation services unit to Spar Aerospace Ltd., a subsidiary of New York-based L-3 Communications Corp., for $90-million (U.S.).
The company recently announced the sale of Belfast City Airport for $77.7-million (Canadian).
Mr. Tellier told shareholders that the company is “suffering from a temporary crisis of confidence, a situation explained by our recent performance. I want to repeat here this morning that this performance is unacceptable to Bombardier shareholders.
“Bombardier reported a loss of $615.2-million on revenue of $23.7-billion last year. The shares rose 20 cents or almost 5 per cent to close at $4.25 on the Toronto Stock Exchange yesterday.
Mr. Tellier warned shareholders — some of whom said they bought when the stock was riding high in the $25 range three years ago — that “we are still a long way from restoring our corporation to a higher level of performance and its historical levels of profitability.”