WSJ : Bombardier in Talks to Sell Business-Jet Unit to Textron

Bombardier in Talks to Sell Business-Jet Unit to Textron
The struggling Canadian train and plane maker is aiming to pare its debt

Bombardier Inc. is in talks to sell its business-jet division to Textron Inc. as the struggling Canadian train and plane maker moves to pare its debts, people familiar with the matter said.

The talks have been going on for several weeks, one of the people said, and they may not result in a deal. Should they, it could yield billions that Bombardier could use to reduce some of its roughly $9 billion of debt.

It is unclear what terms and structure the companies are discussing.

The negotiations began after Bombardier entered into talks in mid-2019 to sell its train unit to France’s Alstom SA . Those discussions have been bogged down, however, in part over the valuation of a business that is struggling with a production backlog. Bombardier is now holding parallel talks for the jet and train units as the company seeks to ensure the sale of one of its major divisions ahead of a big debt payment next year.

The company has nearly $1.5 billion of debt coming due next year, according to Factset.

The business-jet market is in a multiyear slump due to increased competition, with deliveries at half the level of their peak in 2008, and combining the businesses could help combat that.

Demand for the most expensive jets such as those made by Bombardier—costing $50 million to $70 million apiece—is holding up better.

Bombardier specializes in large business jets with such lines as the Learjet 75, the Challenger 650 and its core Global brand. Its recently launched Global 7500 is the world’s largest and longest-range business jet, seating up to 19 passengers. The jet group is the company’s most profitable and accounts for most of its aviation income.

Its aviation unit reported $388 million of earnings before interest, taxes and special items in the first nine months of 2019. Bombardier said last month it expects the unit to report sales of about $7.5 billion for 2019, while its train division would log about $8.3 billion. The company is set to report full-year results later this month.

Textron, maker of the Cessna brand, is the world’s biggest business-jet maker by deliveries and specializes in small- and medium-size planes. The company has a market value of roughly $11 billion.

Textron also owns Bell Helicopters, one of the world’s biggest makers of rotorcraft, as well as a large defense business specializing in drones and ground vehicles. Textron’s aircraft segment accounted for roughly 36% of its revenue in 2018.

The Providence, R.I., company said in December it planned to cut costs and decrease head count in both its aviation segment and its slightly smaller industrial segment.

Bombardier has already agreed to sell its commercial jetliner and turboprop units and has said it is actively pursuing alternatives to accelerate payments on roughly $9 billion of debt. Manufacturing and software problems with train orders primarily in Europe have delayed deliveries and triggered a $350 million charge for the fourth quarter. The company also signaled it may exit a joint venture with Airbus SE to build CSeries commercial jets because of rising costs as the unit increases the volume of planes produced.

The planned sale of one of Bombardier’s two remaining core divisions underscores the rapid decline of a storied Canadian transportation company that got its start in 1937 with the invention of a winter vehicle now known as the snowmobile and went on to compete with some of the world’s biggest aircraft and train makers.

The company, controlled by the Bombardier and Beaudoin families, began to falter several years ago after an attempt to compete against global giants with its CSeries line of narrow-body commercial planes took more than a decade and billions of dollars to build. Airbus in 2018 closed a deal to acquire a majority stake in the CSeries, which has since been renamed the A220.

The potential sale of the aircraft division could create political headwinds for Bombardier in Quebec. The province gave the company a $1 billion lifeline to support the troubled CSeries aircraft in 2015 and its large aerospace sector is sustained in part by Bombardier’s business-jet operations.

WSJ : U.S. Pushing Effort to Develop 5G Alternative to Huawei

U.S. Pushing Effort to Develop 5G Alternative to Huawei
Companies including Dell, Microsoft and AT&T are part of the effort, White House economic advisor Larry Kudlow says

WASHINGTON—Seeking to blunt the dominance by China’s Huawei Technologies Co., the White House is working with U.S. technology companies to create advanced software for next-generation 5G telecommunications networks.

The plan would build on efforts by some U.S. telecom and technology companies to agree on common engineering standards that would allow 5G software developers to run code atop machines that come from nearly any hardware manufacturer. That would reduce, if not eliminate, reliance on Huawei equipment.

Companies including Microsoft Corp., Dell Inc. and AT&T Inc. are part of the effort, White House economic adviser Larry Kudlow said.

“The big-picture concept is to have all of the U.S. 5G architecture and infrastructure done by American firms, principally,” Mr. Kudlow said in an interview. “That also could include Nokia and Ericsson because they have big U.S. presences.”

The U.S. contends Huawei has strong links to the Chinese military, making use of its equipment a national-security risk. Huawei has denied such links and says it operates independently.

Mr. Kudlow said Dell founder Michael Dell was a strong backer of the project, noting that software is becoming more important as 5G develops.

“Dell and Microsoft are now moving very rapidly to develop software and cloud capabilities that will, in fact, replace a lot of the equipment,” he said. “To quote Michael Dell, ‘Software is eating the hardware in 5G’,” Mr. Kudlow said.

The effort is in a preliminary stage and still faces many obstacles, including bringing together different companies with varying priorities. Cellular networks use highly specialized technology that is mostly new to enterprise software companies like Microsoft and Dell. But White House officials are taking the effort seriously because of the potential value of 5G technology to the broader economy.

Industry boosters say the engineering standard will power an “Internet of Things” in which factories, household appliances and vehicles are connected in the way mobile phones are now. They say 5G can do for future tech startups what 4G technology did for smartphone apps like Uber Technologies Inc. and Snapchat Inc., building a foundation for future innovation.

Huawei won’t be easy to unseat as the global leader, however.

Huawei is the world’s top seller of telecom equipment, followed by Finland’s Nokia Corp. and Sweden’s Ericsson AB, according to market researcher Dell’Oro Group. It has won fans globally—including small rural telecom carriers in the U.S.—for the quality of its equipment and the company’s technical support.

Over American objections, the U.K. recently decided to permit Huawei to build part of the country’s 5G system.

Andy Purdy, Huawei’s chief U.S. security officer, said American officials shouldn’t sideline the Chinese telecom giant.

“If the U.S. wants 5G hardware and software developed by a U.S. or European company, the government should encourage companies to begin negotiations with Huawei to license our 5G technology,” Mr. Purdy said, adding that without the company’s intellectual property, “the combined product will be 1-2 years behind the comparable Huawei products in terms of functionality and assurance.”

Paul Triolo, head of global technology policy at the Eurasia Group, a business consulting firm agreed that Huawei has a formidable lead.

“The problem is you’re starting late in the game to fix this problem,” Mr. Triolo said of the U.S. effort. He added that the initiative could also threaten Finland’s Nokia and Sweden’s Ericsson by making their machines a commodity, Mr. Triolo said.

Representatives of Nokia and Ericsson didn’t immediately offer comments.

Other potential issues could slow the project. If U.S. and European companies work separately, it could take longer to develop world-beating technology. If they work together, it could raise antitrust concerns.

Mr. Kudlow said he didn’t believe antitrust would be an issue, saying the companies would compete in providing 5G technology. “We’re taking a coordinating role among leading companies,” he said.

He didn’t provide a specific time frame, though others in the government have said they expect to have a system running within 18 months. Earlier, the White House had considered subsidizing a new hardware competitor to Huawei or backing a government-owned 5G network but had rejected both.

President Trump is squarely behind the effort, said Mr. Kudlow, who is leading the initiative as director of the National Economic Council.

“The president kept saying to me, ‘Can’t we just put it (5G) under one simple infrastructure?’” Mr. Kudlow said. “We’re trying to create an American soup-to-nuts infrastructure for 5G. He kept hearing that Huawei seems to be able to do it.”

U.S. lawmakers have also proposed funding research and development into open 5G software standards. A bipartisan group of senators in January proposed tapping proceeds from the Federal Communications Commission’s coming spectrum license auctions to pay for research grants into those technologies.

The administration is looking into those efforts but hasn’t yet decided whether to back them, Mr. Kudlow said.

Internationally, U.S. officials have discussed their 5G development plans to try to convince allies to ban Huawei equipment. Huawei is deeply ingrained in countries like the U.K. and Germany. Mr. Kudlow said he hoped the software project would help the U.K. reverse its recent decision to permit Huawei to build part of its 5G network.

The software development push has attracted interest from U.K. officials who want domestic cellphone carriers to have more suppliers to choose from other than Huawei and its Scandinavian rivals, according to a person familiar with the matter.

At the same time that the U.S. is trying to block Huawei overseas, the administration is split on whether U.S. companies should continue to supply the firm, which is on a Commerce Department blacklist. The Defense Department recently opposed a Commerce rule that would close a loophole that allowed U.S. firms to continue selling computer chips and other products that aren’t deemed sensitive from a national security perspective.

The Pentagon argued that if U.S. companies lose Huawei as a customer, they will have fewer profits to pour into research and development.

Mr. Kudlow signaled that he was aligned with the Pentagon view. “We don’t want to put our great companies out of business; the president is a strong believer in that,” he said. “But on the other hand, we are very aware that Huawei is a threat to our national security.”

WSJ : Intercontinental Exchange Makes Takeover Offer for eBay

Intercontinental Exchange Makes Takeover Offer for eBay
A deal could value the online marketplace at more than $30 billion

New York Stock Exchange owner Intercontinental Exchange Inc. ICE -1.14% has made a takeover offer for eBay Inc. EBAY +5.41% that could value the sprawling online marketplace at more than $30 billion, according to people familiar with the matter.

Intercontinental Exchange, known as ICE, has approached eBay in the past and did so again recently, the people said. The companies aren’t currently in formal talks and there is no guarantee eBay would agree to a deal.

Should there be one, it would be big, given eBay’s market value of more than $28 billion and the premium ICE would likely have to pay.

ICE is primarily interested in owning eBay’s core marketplace business, the people said, and not its classified unit, which eBay has been considering selling. The classified unit could fetch around $10 billion in a sale, people familiar with the matter have said.

ICE may see an opening to apply its technological expertise connecting buyers and sellers to eBay’s core e-commerce site covering everything from electronics to collectibles.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • EZPW -9.2%, KMT -7.5%, HLIT -5.4%, MTSC -4.5%, CNC -3.5%, GOOG -3.2%, PBI -3.1%, LEG -3%, WAT -1.8%, BECN -1.6%, ETN -1.6%, NXPI -1.2%, MSGN -0.9%, SXI -0.8%, EMR -0.6%

Other news:

  • RMTI -13.7% (stock offering)
  • CTLT -3.6% (prices public offering of its common stock with expected gross proceeds of approximately $500 mln)
  • IVR -2.3% (announces offering of 18 mln shares, also issues upside EPS guidance)
  • CCC -1.8% (announces 20 mln share offering)
  • BNTX -0.9% (commences public offering of 6.0 mln ADSs)

Analyst comments:

  • SAIA -2.7% (downgraded to Equal-Weight from Overweight at Stephens)
  • ORAN -1.5% (downgraded to Hold from Buy at Berenberg)