Rockwell Collins, best known for its avionics and eletronics products, and B/E Aerospace, a specialist in cabin interiors, have announced that they have entered into a definitive agreement under which Rockwell Collins will acquire B/E Aerospace for approximately $6.4bn in cash and stock, plus the assumption of $1.9bn in net debt. The deal is seen by some observers as a sign that the commercial aircraft order cycle has passed its peak, raising the pressure on suppliers to reduce costs.
Under the terms of the agreement, each B/E Aerospace shareowner will receive total consideration of $62.00 per share, comprised of $34.10 per share in cash and $27.90 in shares of Rockwell Collins common stock, subject to a 7.5% collar. This represents a premium of 22.5% to the closing price of B/E Aerospace common stock on 21st October.
The transaction — described by Kelly Ortberg, Chairman, President and CEO of Rockwell Collins as a “transformational acquisition” — combines Rockwell Collins’ capabilities in flight deck avionics, cabin electronics, mission communications, simulation and training, and information management systems with B/E Aerospace's range of cabin interior products, which include seating, food and beverage preparation and storage equipment, lighting and oxygen systems, and modular galley and lavatory systems for commercial airliners and business jets.
The acquisition significantly increases Rockwell Collins’ scale and diversifies its product portfolio, customer mix and geographic presence. On a pro forma basis, Rockwell Collins would have nearly 30,000 employees, $8.1 billion in revenues and $1.9 billion in EBITDA for the twelve months ending September 30, 2016.
Ortberg noted that B/E Aerospace’s $12bn installed base would provide a strong flow of aftermarket retrofit opportunities that balances Rockwell Collins’ current cyclical exposure to OEM production rates. He remarked : “Additionally, our combined portfolio uniquely positions us to integrate cabin products, smart network technologies and connectivity solutions to significantly enhance aircraft uptime and airline profitability while improving the experience of passengers and airline personnel.”
The transaction is expected to generate run-rate pre-tax cost synergies of approximately $160m ($125m after tax). In addition, Rockwell Collins expects to make certain conforming purchase accounting adjustments resulting in improved pre-tax earnings of approximately $60m to $90m per year for the first six years after the acquisition. The transaction is expected to be double-digit accretive to earnings per share in the first full fiscal year.
Upon close of the transaction, Rockwell Collins will increase the size of its Board to 11 members with the addition of two B/E Aerospace board members. Werner Lieberherr, CEO of B/E Aerospace, will become Executive Vice President and Chief Operating Officer of a newly created aircraft interior systems segment for Rockwell Collins.