Bombardier Inc., the Canadian plane and train maker, has hired UBS Group AG and Citigroup Inc. to advise on a potential initial public offering or sale of its rail unit, according to people familiar with the matter.
The rail business could be valued at about $5 billion in a sale, said the people, who asked not to be identified because talks are private. An IPO of a stake in the Berlin-based division, possibly in Germany, or a sale may take place this year, though no final decision has been made, they said.
A breakup may be the best way for Montreal-based Bombardier to overcome the struggles facing its aerospace business, analysts and investors have said. The rail unit, whose products include locomotives, subway cars and signaling and control equipment, is the healthier part of the company, with 2014 earnings before interest and taxes of $429 million. The aerospace unit posted a loss of $995 million.
Splitting off the rail unit -- which is called Bombardier Transportation -- would let management focus on the aerospace turnaround, according to Anthony Scilipoti, an analyst at Veritas Investment Research Corp. in Toronto. He recommends selling Bombardier shares.
Spokeswomen for Bombardier, Citigroup and UBS declined to comment.
Bombardier’s Class B shares rose 3.1 percent to C$2.68 at the close in Toronto. The stock is 2015’s worst performer among Canadian industrials, falling 35 percent amid Bombardier’s postponement of the already late commercial debut of its CSeries jet and suspension of the Learjet 85 business aircraft program.
Under division head Lutz Bertling, Bombardier has been reorganizing its rail operations to trim spending and increase standardization after the unit was beset by cost overruns in countries including France and Germany.
Bombardier is forecasting a “slight” improvement in profit at the division this year amid a “low single digit” increase in revenue from 2014’s $9.6 billion, according to a Feb. 12 statement.
Selling or listing part of the rail business on the stock market now could result in Bombardier leaving money on the table, Cameron Doerksen, an analyst at National Bank Financial in Montreal, said Tuesday in a note to clients.
Bombardier Transport “is still in the early stages of a restructuring program that should see its profitability and cash flow improve materially,” Doerksen said. “As such, a sale or even an IPO of a minority stake in BT would not maximize the potential value for Bombardier Inc. We therefore would not expect a sale or IPO, even of a minority stake, to take place in the near term.”
Bombardier isn’t planning an outright sale of the rail unit, Quebec Economy Minister Jacques Daoust said last week after speaking with Bombardier Executive Chairman Pierre Beaudoin.
Reuters reported April 10 that Bombardier was exploring options for the business.