Rockwell Collins to Buy B/E Aerospace for $6.4 Billion--2nd Update
Rockwell Collins Inc. said Sunday that it had agreed to pay $6.4 billion to buy B/E Aerospace Inc. in a deal that would unite two of the global aerospace industry's biggest suppliers.
The proposed deal values B/E Aerospace at $62 a share in cash and stock, a 22.5% premium to Friday's closing share price. The agreement continues a slew of deals in the aerospace industry as suppliers adjust to pressures from Airbus Group SE and Boeing Co. to cut costs as they work through a backlog of more than 10,000 jets valued at over $1.5 trillion.
The Wall Street Journal reported Saturday that the companies were in advanced talks.
Rockwell Collins has long been viewed by analysts as a potential takeover target, and bulking up would provide Chief Executive Kelly Ortberg with a bigger vehicle to drive deals with airlines and plane makers.
For Rockwell, based in Cedar Rapids, Iowa, the deal would add to a portfolio focused on cockpit and cabin systems and other electronics for passenger, business and military jets. The company could provide a broader offering of passenger cabin products alongside its range of entertainment systems with in-flight connectivity becoming increasingly important to airlines.
B/E Aerospace, based in Wellington, Fla., is one of the world's largest makers of aircraft seats and other interior fittings such as galleys. It already has an installed base of $12 billion, providing opportunities to sell upgraded equipment to airlines, as well as a backlog of almost $9 billion.
Rockwell plans to create an interiors division headed by B/E Aerospace CEO Werner Lieberherr. The company also said it plans to retain its investment-grade credit rating.
Airlines and leasing companies typically order seats and other fittings direct from the manufacturer and B/E Aerospace has benefited from production problems at French rival Zodiac Aerospace SA that have helped the U.S. company win market share over the past year.
The proposed deal also comes as investors in the aerospace sector have become concerned that the prolonged rise in aircraft production will start to slow because of cooling economic conditions.
A number of aerospace and defense companies and assets have changed hands recently. Last year, Lockheed Martin Corp. bought the Sikorsky helicopter unit from United Technologies Corp. for $9 billion. Earlier this month, CIT Group Inc. agreed to sell its commercial-airline leasing business to Chinese conglomerate HNA Group for about $4 billion.
Earlier this year, Honeywell International Inc. aborted its $90 billion bid for United Technologies. The two companies had big overlap in their business units, especially in aerospace, and a transaction would have faces steep regulatory hurdles.
B/E Aerospace shares closed Friday at $50.61, valuing the company at $5.1 billion after a nearly 20% rise this year. Rockwell is more than twice the size, with a $10.9 billion market value.
Citigroup and Goldman Sachs served as financial advisers to B/E Aerospace and Shearman and Sterling LLP served as legal counsel. J.P. Morgan Chase & Co. and Skadden, Arps, Slate, Meagher & Flom advised Rockwell Collins on the deal.
Both companies also reported their quarterly results in connection with the deal announcement. Rockwell said its earnings increased 13%, while its sales rose 4.4% driven by improvement in the government systems division. Its sales projection for the recently started business year was short of Wall Street estimates.
As for B/E Aerospace, earnings surged 82% from a year-earlier period that was hit by restructuring charges. Revenue, meanwhile, grew 7.8%, buoyed by the commercial aircraft segment. The company also raised its guidance for the year.