2 Pieces of Good News for Bombardier, Inc. Shareholders

Bombardier, Inc. (TSX:BBD.B) shareholders may see a reverse share split and some governance changes.

| More on:
The Motley Fool

As 2016 progresses, there hasn’t been much good news for Bombardier, Inc. (TSX:BBD.B). CSeries orders remain hard to come by, concerns about the balance sheet are growing, and the stock continues to slide well below $1.

That being the case, there are a couple of bright spots. We take a look at each below.

1. A reverse share split

When Bombardier’s shares fell below $1, it increased the possibility that the stock would get booted from the TSX index. This caused the stock price to fall even further.

But according to unnamed sources cited by Reuters, Bombardier will soon announce a reverse share split. And this will allow the company to stay in the TSX.

This isn’t just a matter of Bombardier’s short-term share price. The company is trying to raise more money from the federal government, and the lower its share price, the more equity Ottawa will demand in return. So this definitely matters, even in the long run.

2. Governance changes

Justin Trudeau is caught in a bind. On the one hand, political commentators (even those with left-leaning views) have been demanding that Bombardier not be bailed out. On the other hand, the company employs nearly 25,000 people in Canada. Either way, Mr. Trudeau’s decision will anger a lot of people.

Back in mid-January, Duncan Melville argued in The Globe and Mail that Mr. Trudeau should force Bombardier to abandon its dual-class share structure in exchange for any cash infusion. Such a condition would certainly make Bombardier more democratic and could make the company better run.

And according to The Globe, federal officials are anonymously telling reporters that Mr. Trudeau will demand such governance changes in exchange for any cash infusion.

This would be great news for shareholders, but it will make things awkward for the federal government. Without the dual-class share structure, an activist hedge fund could accumulate a big equity stake and demand changes to the company. These changes could involve the sale of business units (such as Bombardier Transportation) or could involve the departure of jobs from Canada.

Perhaps as a part of any bailout package, the Canadian government could impose conditions on Bombardier that ensure production stays local. But such tactics would smell like government overreach.

As you can see, this is a very complicated decision.

Either way, it looks like Bombardier will go through some big changes. And given how the past few years have gone, any changes will likely be perceived as good news.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair has no position in any stocks mentioned.

More on Investing

Canadian flag

1 Magnificent Canadian Stock Down 4 Percent to Buy and Hold Forever

Here's one magnificent Canadian stock long-term investors may want to add, despite the company being near its all-time high.

Read more »

four people hold happy emoji masks

Why Canadian Investors Should Consider Investing in U.S. Stocks

U.S. lender Oaktree Specialty Lending (NASDAQ:OCSL) has an even higher yield than Toronto-Dominion Bank (TSX:TD).

Read more »

consider the options
Dividend Stocks

Is TD Bank the Best Dividend Stock for You?

Toronto-Dominion Bank (TSX:TD) has a high dividend yield but is embroiled in a serious money-laundering scandal.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

How to Use Your TFSA to Earn $6,000 Per Year in Passive Income

Hint: You'll need this Hamilton covered call ETF, which yields over 10%.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Friday, June 21

Overnight weakness in metals prices could pressure TSX mining stocks at the open today.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.

TFSA: 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Here are two TFSA stocks that have excellent capital gains potential as they are leaders in their respective industries.

Read more »

Growth from coins
Dividend Stocks

2 Dividend-Growth Stocks With TSX-Beating Potential That Deserve More Respect

Here are two of the best TSX dividend-growth stocks you can buy today and hold for the next decade.

Read more »

A stock price graph showing declines
Bank Stocks

TD Stock Has Fallen to a Low of $73: Is it Done Dropping?

TD (TSX:TD) is often viewed as a great long-term investment. But given its volatility in recent months, has TD stock…

Read more »