TCI steps up campaign to block Zodiac takeover
Activist fund threatens sue individual Safran board members
One of Europe’s largest activist hedge funds has stepped up its campaign to block French engine maker Safran’s €8.5bn takeover bid for rival Zodiac Aerospace, threatening to sue every Safran board member personally if shareholders interests are damaged.
The Children’s Investment Fund wrote a letter to the Safran board saying that if the deal leads to a loss of value for Safran “we would have no choice but to seek to recover the damage suffered by the company from you personally”.
TCI last month started a campaign to block the Zodiac deal, which would create the world’s third-largest aerospace supplier by revenue, but this is the first time they have threatened legal action against individual Safran board members. TCI, which manages $14bn of assets, owned 4.1 per cent of Safran in February.
A spokesperson for Safran declined to comment on the letter, which was sent on March 17 and has been seen by the Financial Times.
The escalation comes as Zodiac, which makes seats, galleys and toilets for the aerospace industry, last week blindsided Safran management and investors by reporting a profit warning, its 10th in three years.
This came just two months after Safran management, on announcing the deal in January, said Zodiac had put its past production difficulties behind it.
“We believe, based on what we have seen, what we have discussed with them that, yes, they are at the bottom of their performance,” said Philippe Petitcolin, chief executive of Safran, in January.
Last week Zodiac said that operating profit would fall 10 per cent in the fiscal year ending in August, rather than the forecast increase of as much as 20 per cent. Zodiac Aerospace last year reported consolidated sales of €5.2bn and current operating income of €269.6m.
Shares in Zodiac fell 16 per cent following the warning to €22.99, below the €23.30 share price the day before the Safran deal was announced and short of the €29.47 per share cash bid price.
Following the news, Safran said that Zodiac’s warning “reflects new developments compared with the information available” in January, and that it could review the terms of the deal.
People close to Safran said the bid price could be cut or the deal could even be scrapped completely.
The profit warning prompted TCI to renew its call on Safran to drop its bid for the cabin interiors and seat group.
“In light of Zodiac’s catastrophic business update Safran should immediately cancel its proposed takeover of Zodiac,” said Sir Christopher Hohn, chief executive of TCI, in a letter to Safran management last week.
Many analysts, including Andy Chambers at Edison Investment Research, say there is a strong business case for Safran to acquire Zodiac, giving it increased exposure to the booming civil aerospace sector. However, this is predicated on resolving production problems which have led to delays in aircraft deliveries and sparked sharp criticism from customers such as Airbus.
Others warned that the deal could distract Safran at a time when it is facing its biggest industrial challenge — increasing production of its new Leap jet engine that will be used on next generation versions of narrow-body aircraft made by Boeing and Airbus.