Bombardier has entered into a memorandum of understanding which contemplates a $1.0 billion investment by the the Government of Québec for a 49.5% equity stake in a newly-created limited partnership (the Investment) to which would be transferred the assets, liabilities and obligations of the C Series aircraft program.
This newly created limited partnership will be owned 50.5% by Bombardier and, as a subsidiary of Bombardier, will carry on the operations related to the Corporation’s C Series aircraft program. After the Investment, the newly created limited partnership will continue to be consolidated in Bombardier’s financial results.
The Investment has been approved by the Board of Directors of Bombardier and the Cabinet of the Government of Québec, and remains conditional upon the completion of definitive agreements, the receipt of consents from third parties, the completion of an internal pre-closing reorganization, the receipt of required regulatory approvals and other customary conditions precedent. The proceeds of the Investment will be used entirely for cash flow purposes of the C Series program.
The Investment also includes the issuance to the Government of warrants exercisable to acquire up to 200,000,000 Class B Shares (subordinate voting) in the capital of Bombardier (Class B Shares) (representing approximately 8.18% of the aggregate issued and outstanding Class A Shares (multiple voting) in the capital of Bombardier (Class A Shares) and Class B Shares assuming the exercise of the warrants, and approximately 8.90% of the aggregate issued and outstanding Class A Shares and Class B Shares on a non-diluted basis), at an exercise price per share equal to the US$ equivalent of $2.21 Cdn on the date of execution of definitive agreements, which represents a premium to the 5-day VWAP of the Class B Shares on the TSX as of October 20, 2015.
The TSX has determined to accept notice of the private placement of warrants and has conditionally approved the listing of the Class B Shares issuable pursuant to the terms of the warrants on the TSX. Listing will be subject to Bombardier fulfilling all of the listing requirements of the TSX. The warrants will have a five-year term from the date of issue and will not be listed on the TSX.
The warrants (and any Class B Shares issuable pursuant to the exercise of the warrants prior to the expiration of the applicable hold period), will be subject to a statutory four-month hold period. The warrants will contain market standard adjustment provisions, including in the event of corporate changes, stock splits, non-cash dividends, distributions of rights, options or warrants to all or substantially all shareholders or consolidations.
Security holder approval is required under TSX rules due to the fact that the warrants will be issued later than 45 days from the date upon which the exercise price was established, as set out in Section 607(f)(i) of the TSX Company Manual. Such approval has been obtained, as agreed with the TSX, by way of written consent of shareholders holding more than 50% of the voting rights attached to all of Bombardier’s issued and outstanding shares.
The Investment was negotiated between Bombardier and the Government at arm’s length and will not materially affect control of Bombardier.
The definitive agreements are expected to be entered into on or before January 1, 2016, or such other date as the Corporation and the Government shall agree, and disbursement of the Investment and issuance of the warrants will occur over two equal installments, expected to take place on April 1, 2016 and June 30, 2016, respectively, subject to the conditions to closing.
The Investment contemplates a continuity undertaking providing that Bombardier shall maintain in the Province of Québec, for a period of 20 years, the newly-created limited partnership’s operational, financial and strategic headquarters, manufacturing and engineering activities, shared services, policies, practices and investment plans for research and development, in each case in respect of the design, manufacture and marketing of CS100 and CS300 aircraft and after-sales services for these aircraft and that Bombardier will operate the facilities located in Mirabel for these purposes.
“With this strategic investment, we will play a leading role in developing an ultra-modern jet that has already been the focus of significant international attention. The entire community will reap the rewards of the new partnership. This move will also keep C Series operations here in Québec for at least another 20 years,” said Minister Daoust.
The Government’s interest in the partnership will be redeemable in certain circumstances.