Four months after the launch of its takeover bid on Zodiac, the French engine manufacturer has revised its offer down by about 15%. To save an operation undermined by the activism of the TCI fund and the profit warning of Zodiac.
The boat pitched, squeaked, but it finally held tight. After four months of storm, between the new warnings on Zodiac results and the relentless guerrilla campaign led by the TCI activist fund against the deal, Safran finally managed to build a new takeover bid for Zodiac Aerospace. To save his operation, the French engine manufacturer made two major changes. One, he reduced the proposed price to 25 euros per share, 5 euros less than announced on 19 January (29.47 euros). Safran is offering 8.7 billion euros, one billion less than in January, which represents a discount of 15%, as
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Secondly, the French aeronautics group has simplified its offer. That of January was based on a complex mechanism, with a takeover bid and then a merger, allowing Zodiac shareholders to benefit from the tax advantages of the Dutreil pact. The TCI fund had made this mechanism a casus belli, ensuring that it introduced an unequal treatment between shareholders. Safran now offers a more traditional offer: a cash offer at € 25 per share, uncapped, and a subsidiary offer, in Safran shares, limited to 31.4% of the capital of Zodiac, with a prohibition on sale Of shares for three years.
TCI Guerrilla
The offer was validated unanimously by the boards of the two groups, and the operation seems to be saved. The contrary winds had multiplied in four months. First, TCI's repeated attacks on the operation. The British activist fund multiplied the letters to the members of Safran's board, some even threatening to prosecute them if they continued to support the operation. TCI even assured in a report published in early May that Zodiac was worth no more than 6 to 8 euros per share, and in no case more than 10 euros ... This all-out offensive had been reinforced by the new warnings on result of Zodiac, related To new problems on aircraft seat activity, which had the effect of a cold shower on the operation.
Ross McInnes, the Chairman of the Board, and Philippe Petitcolin, CEO of Safran, finally stood firm. The interest of the operation is intact, they assure in chorus. "We have been listening to our shareholders since January and have taken their remarks into account when they are constructive," said Ross McInnes, quoted in the statement. "We are absolutely convinced of the strategic logic of the operation." According to the group, the integration of Zodiac by Safran should even make it possible to resolve more quickly the crisis of activity seats and interiors of aircraft. "I personally visited recently several industrial sites of Zodiac in Europe and in the United States to verify that the skills of Safran will solve the current difficulties," says Philippe Petitcolin in the release. However, Ross McInnes acknowledged that the recovery of the margins of Zodiac could take "one or two years" more than envisaged last January. "There will probably be a loss of markets, but the fundamentals are good," assures the Chairman of Safran.
200 million annual synergies
For the rest, the group's managers were careful to reassure the shareholders of the group. One, Safran maintained its target of 200 million euros in synergies per year, of which 90% three years after completion of the operation and 100% over five years, thanks to "optimization of international locations" , In clear the rationalization of the many factories of Zodiac. Two, he confirmed his promise to launch a share buyback program worth € 2.3 billion over two years. Three, he insists to continue to pay 40% of his net profit in dividends, and promises to remain in the investment grade rating agencies.
The track seems free for a finalization of the offer in early January 2018. What to content the two camps: Safran gets his hand on a long-sought-after target, which had refused his advances on several occasions. As for Zodiac, he spares himself the trauma of a failure of the operation. At the end of April, the group announced the development of a plan B, based on maintaining the group's independence, to the former CEO of Faurecia Yann Delabrière. But this scenario would probably have resulted in a sharp fall in the Zodiac title, as markets no longer hide their mistrust for a group that has accumulated eleven warnings on results in two and a half years.
Departure from Zarrouati after the operation
Zodiac CEO Olivier Zarrouati, who was to become number two in the group merged under the terms of the first offer, should eventually let go of the group once the deal is finalized. As for the family shareholders of Zodiac, they should bring their shares to the Safran offer. "The majority should opt for the offer of securities, and thus become shareholders of Safran," assures a source close to Zodiac. Only a few family shareholders (5% of the maximum share capital) should remain Zodiac's shareholders for an indefinite period, pending the launch of a mandatory withdrawal operation.