Bombardier shares fall after tender offer and stock consolidation

Bombardier Inc. shares fell for a second day on Tuesday as the company announced a US$350 million offer to buy back some of its debt ahead of schedule using available cash.

The tender offer followed the announcement by the Canadian aircraft manufacturer that it had completed a reverse stock split on Monday. The company consolidated its Class A and Class B shares at a 25-to-1 ratio after obtaining board and investor approval.

The stock closed down 18.21% at $21.97 on Tuesday, ending the trading day as the worst performing stock on the Toronto Stock Exchange.

Kevin Chiang, an analyst at CIBC Capital Markets, said he lowered his 12-month price target for the stock despite a near-to-medium favorable environment for business jets.

“We continue to see [Bombardier] get ahead of its goals while benefiting from healthy industry trends. That said, growing concerns about a recession limit [Bombardier’s] opportunity to reevaluate,” Chiang wrote in a note to clients on Tuesday.

“We maintain our neutral rating and our price target moves from $45 (post-consolidation) to $36.”

But other analysts are optimistic that the stock consolidation could help attract more long-term investors.

“While some investors were concerned that the consolidation was intended to prevent the stock from falling below $1.00 (was trading at $1.50 at the time of the intent disclosure), we reiterate that the primary reason was to reduce volatility in the stock, which can help attract long-term equity investors,” Konark Gupta, an analyst at Scotia Capital Inc., wrote in a note to clients on Monday.

Gupta maintained an industry outperform rating (equivalent to a buy) as Bombardier “offers the highest potential return in our hedge.”

The stock currently has 12 buys, three holds and two sells.

UNION TALKS CONTINUE

Bombardier is also navigating negotiations with a union representing 1,800 workers at the company’s Quebec factories in Saint-Laurent and Dorval after employees went on a day-long strike on Monday.

The International Association of Machinists and Aerospace Workers (IAMAW) returned to the bargaining table on Tuesday after rejecting Bombardier’s final offer to renew the workers’ collective agreement.

“This result confirms that Bombardier still has a long way to go to rebuild a sense of belonging with workers,” IAMAW sales representative Eric Rancourt, head of the Bombardier unit, said in a statement.

“It’s simple, what the members want in this collective agreement is recognition of the sacrifices they have made over the past few years to help the company. Add to that the rising cost of living.

The two main issues taking center stage in these negotiations are wages and the indexation of pensions.

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