Canadian institutional investor Caisse de dépôt et placement du Québec (CDPQ) signed an agreement to acquire a 30% stake in Bombardier Transportation for $1.5bn.
CDPQ will acquire shares in the newly created Bombardier Transportation (Investment) UK (BT Holdco), which will be convertible into common shares initially representing 30% of BT Holdco.
Subject to regulatory approval, the transaction that values Bombardier Transportation at $5bn is expected to be completed in the first quarter of next year.
BT Holdco will own all of the assets of Bombardier’s existing transportation business segment and will be governed independently by a new board to be composed of seven members, three of which will be named by CDPQ.
Bombardier president and CEO Alain Bellemare said: "This investment by CDPQ, which has a long history as one of our major investors, is a testimonial to the growth potential of the rail industry and to Bombardier’s leadership in seizing the opportunities this market offers on a global scale.
"Bombardier and CDPQ have one common objective: leveraging Bombardier Transportation’s innovative portfolio of products and services, engineering talent and worldwide presence to drive margin expansion."
Bellemare will chair the board, while Dr Lutz Bertling will remain as president of Bombardier Transportation.
Bombardier has been considering various options, including a possible IPO or an international auction, for private placement of a minority stake in its rail business.
The sale proceeds will be utilised to make the company debt-free.
CDPQ president and CEO Michael Sabia said: "The hybrid investment instrument designed for this transaction allows our depositors to benefit from the improving performance of Bombardier Transportation with its equity-like features, while protecting their capital through its bond-like characteristics.
"This investment is structured with the goal of delivering double-digit returns."
Bombardier noted that it can buy back CDPQ’s equity interest in BT Holdco at any time on or after three years, at the higher of the fair market value on an as-converted basis or a minimum three-year 15% compounded annual return.
If one of the two parties intends to sell its stake, it will offer the deal to the other party, before approaching any external buyers.