By Freya Berry, Pamela Barbaglia and Sophie Sassard
LONDON (Reuters) - Bombardier (TO:BBDb) is exploring ways to raise money from its transportation unit, which bankers value at up to $5 billion, as the Canadian group grapples with huge cost overruns in its aircraft business, six sources familiar with the matter said.
The world's largest manufacturer of planes and trains is working with banks on the strategic options for its transport arm, which provides rail vehicles, signaling and control equipment, the sources said on Friday.
Among the options are a possible sale of all or part of the business, as well as an initial public offering (IPO) either in Germany, where the business in based, or in the UK, three sources said, declining to be named since the matter is private.
A merger with peers such as Germany's Siemens (DE:SIEGn) or France's Alstom (PA:ALSO) could also be considered, one of the sources said, referring to a tie-up between China's biggest train makers CNR and CSR Corp (HK:1766) (SS:601766) last year which put pressure on rivals to gain scale.
Discussions are in early stages and Bombardier may delay any action until potential buyers like Alstom and Hitachi (T:6501) have finished wrapping up recent transactions, the sources said.
The discussions come as Bombardier's aircraft business battles with overruns in cost and development for its new CSeries jet, which has sent the firm's stock down 38 percent this year.
In February the company suspended dividends, replaced its chief executive, took on new long-term debt and said it would issue new shares to shore up its finances.
Bombardier has more than $9 billion of long-term debt, according to documents from its most recent bond deal. Its market capitalization is currently C$5.89 billion ($4.66 billion), giving an enterprise value of about $13.7 billion.
Bombardier spokeswoman Isabelle Rondeau noted that the company has previously said it is interested in "participating in consolidation." She added that many options were on the table, but there was no fire sale.
"We're in no rush to do anything," she said. "We will act in a diligent and smart way to make sure that whatever we do will create value for our shareholders.
Bombardier shares jumped as much as 7.3 percent to C$2.79 in early Toronto trading on the back of the Reuters report. At 1120 ET they were up 4.2 percent.
POTENTIAL BUYERS BUSY?
The transportation arm saw earnings before interest and tax (EBIT) of $486 million in 2014, down 3.7 percent from 2013.
The unit could appeal to sector rivals like Siemens, Alstom, Hitachi or GE, the sources said. Siemens and Alstom might however face antitrust issues because of their dominant positions in Germany and France, said the sources.
Alstom is also currently busy with its 12.4 billion euro sale of its power equipment business to General Electric (N:GE), and is unlikely to embark on a new deal before that is completed, said the sources.
Japan's Hitachi is also tied up after agreeing in February to acquire the rail business of Italian group Finmeccanica (MI:SIFI) for 1.9 billion euros.
China's CNR and CSR Corp are not expected to seek further expansion in the near future.
Banking sources expect consolidation to continue as the sector remains fragmented.