Bombardier should be “on alert” for merger opportunities that will enable its transportation unit to compete with larger rivals in an industry that is consolidating to help reduce costs, the chief executive of its biggest independent shareholder said on Wednesday.
“I think, in an industry that’s consolidating to the degree that it is and given the scale issues associated with the size of the Chinese presence in that industry, the company needs to be always alert to M&A opportunities,” Caisse de dépôt et placement du Québec CEO Michael Sabia told reporters.
Germany’s Siemens AG last September opted to merge its rail business with France’s Alstom SA instead of Bombardier’s rail unit, leaving Bombardier facing a challenge to compete in a market dominated by China’s state-owned CRRC Corp, the world’s largest train maker, and the combined European group.
Sabia was speaking after Canada’s second biggest public pension plan reported a 9.3 percent return on its clients’ funds in 2017, helped by a strong performance from its equities investments.
Separately on Wednesday, Bombardier Chief Executive Alain Bellemare told a Miami conference that the company would weigh options for the rail unit. But he said there was no “rush” to consolidate since the US$8.5 billion division has the heft to compete on its own and because he does not expect Alstom and Siemens to quickly merge and benefit from synergies.
“It’s going to be a very tough merger,” Bellemare said of Alstom and Siemens. “We’ll see when they get this approved.”
The Caisse, which invests on behalf of workers and retirees in Québec, has a near 30 percent stake in Bombardier’s rail division, which reported strong earnings last week and has a US$34 billion order backlog according to recent figures.
Bellemare said the rail unit is focusing on execution.
Bombardier missed out on a contract to provide rail cars for one of the world’s biggest light rail systems in Montréal, a project led and financed by the Caisse. It has also been challenged by delays, with Ontario transit agency Metrolinx cutting its vehicle order following a dispute over Bombardier’s ability to fulfill its contract.
The Caisse also has a 2.5 percent stake in the parent.
The Caisse said its net assets totaled $299 billion (US$236 billion) at the end of 2017, up from $271 billion a year earlier. The fund has diversified to become one of the world’s biggest investors in infrastructure and real estate as well as a major investor in global equity and fixed income markets.
Sabia said it was positioned to take advantage if the prices of assets decline. “If a correction arises I would see that as a very significant opportunity,” he said. “We have the flexibility to move substantial capital from one or two asset classes into others.”
Sabia said the Caisse was looking at possible investments in blockchain technologies but dismissed the idea of investing in bitcoin. “I‘m not signed up for lottery tickets. That’s what I think bitcoin pretty much is,” he said.
(Reporting By Allison Lampert and Matt Scuffham; editing by Phil Berlowitz and Tom Brown)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo of Michael Sabia courtesy of Reuters/Chris Helgren