Safran hits back at TCI’s campaign to stop Zodiac takeover
French group says fund’s attempts to stop deal would destroy long-term value
French jet engine maker Safran has accused one of Europe’s largest activist hedge funds of wanting to “destroy value” in the long term in its attempt to scupper an agreed €8.5bn takeover for rival Zodiac Aerospace.
Last week, The Children’s Investment Fund, run by Sir Chris Hohn, launched a campaign to block the aerospace deal, saying it had “no strategic rationale” and demanding cash be returned to shareholders instead.
TCI argued that Safran would be worth €100 per share if it ditched its offer for Zodiac, the maker of aircraft seats and cabin interiors, compared to €66 that it was trading at this week. It said the company was “massively overpaying” for Zodiac for “questionable synergies”.
Safran’s management struck back on Thursday, claiming TCI was making “baseless” claims, and it cast doubt on the fund manager’s understanding of both French corporate governance laws and the aerospace industry.
In a letter by the Safran board sent to Mr Hohn on Thursday, the company said TCI’s proposal for a share buyback instead of the deal “results from a partial and incomplete view likely to destroy value for shareholders in the long term”.
The claim that Zodiac was of “inferior” quality to Safran “overlooks certain fundamentals” in the cabins and seats business, said Safran in the letter, adding that while Zodiac had production problems in the past it was now on track with its latest financial targets.
Speaking to the Financial Times, Ross McInnes, chairman of Safran, added that “the management and the board of Safran did not need to take lessons from anyone on how we manage our portfolio”.
He particularly criticised TCI for pushing them in 2012 to sell their 23 per cent stake in Ingenico, the payments company, for about €470m. “By waiting, we ended up receiving €900m,” he said.
The comments will add to the bad blood between Safran and TCI, which has built a reputation as an activist investor following high-profile campaigns in Europe, Asia and the US.
One of TCI’s main criticism of the Safran deal was that shareholders will not be given a vote at the upcoming annual meeting on the initial part of the Zodiac deal, which is a tender offer of €29.47 per Zodiac share.
Safran shareholders will only get a vote on the subsequent merger, which will offer 97 Safran shares for 200 Zodiac shares, but by which point most of Zodiac will already likely be owned by Safran.
Mr McInnes said Safran had no obligation under French law to hold a vote on the initial tender and that TCI — as a “sophisticated investor” — should have known this when buying its shares in the first place.