[UPDATED] Rockwell Collins and B/E Aerospace will consolidate headquarters and move quickly to realize synergies, Rockwell Collins said Monday after announcing plans to acquire aircraft cabin supplier B/E Aerospace for $8.3 billion in a deal that is expected to complete in spring 2017.
In a statement issued on Oct. 23, Rockwell Collins said it had entered a definitive agreement to acquire B/E Aerospace for approximately $6.4 billion in cash and stock, plus it will take on $1.9 billion in net debt. The agreement is subject to shareholder and regulatory approvals.
B/E Aerospace is a significant player in the global aircraft cabin interiors’ market, employing around 10,000 staff. The company designs, develops and manufactures seats, lighting and oxygen systems, galley equipment and lavatories for commercial aircraft and business jets.
Rockwell Collins specializes in flight deck avionics, cabin electronics, mission communications, simulation and training and information management systems, making it dependent on aircraft production rates. Also, once the avionics are installed, they typically remain on-wing unless there is a regulatory mandate that requires a change. Conversely, B/E Aerospace’s business is driven by airline cycles, with far more retrofit work, spreading the risk for the newly enlarged company.
Combined, the two companies have nearly 30,000 employees, $8.1 billion in revenue and $1.9 billion in EBITDA for the 12 months ended Sept. 30, 2016. This is before accounting for synergies from the B/E Aerospace acquisition.
“This combination delivers significant long-term benefits neither company could realize on its own,” B/E Aerospace founder and chairman Amin Khoury said.
Current B/E Aerospace CEO Werner Lieberherr will become EVP and COO of Rockwell Collins’ newly created aircraft interior systems segment. Lieberherr will take a seat on the Rockwell Collins board alongside a second B/E Aerospace representative. This is a similar structure to the one used when Rockwell Collins acquired ARINC in 2013.
B/E Aerospace shareholders will receive $62 per share, comprising $34.10 in cash and $27.90 in Rockwell Collins shares. This means that, on completion, current B/E Aerospace shareowners will own approximately 20% of the combined company. “From a financial perspective, this is very attractive to both company’s shareholders,” Rockwell Collins chairman, president and CEO Kelly Ortberg said.
The acquisition will diversify Rockwell Collins’ activities, delivering $160 million in pre-tax cost synergies, with around 90% of this figure being realized by year two (FY2019). Rockwell Collins added that the deal will be “double-digit accretive to earnings per share in first full fiscal year with expected combined five-year free cash flow generation in excess of $6 billion.”
Synergies will come from four key areas. First, the companies plan to rapidly eliminate duplicated processes and consolidate their headquarters. A second area, which has already been evaluated in detail, is supply chain rationalization. Third, the two companies will look at their IT systems on a plant-by-plant basis and, finally, they will look at “wher and how” they build products, shifting production to countries with low manufacturing costs.
Most importantly, Ortberg said the combination reflects increasing demand for a connected aircraft, wher the cabin is becoming a “node on the network.” Rockwell Collins can give B/E Aerospace smart-cabin capability, while B/E Aerospace produces cabin hardware.
When aircraft are havin avionics work done, B/E Aerospace can perform cabin upgrades, giving it access to a stream of work that it previously did not have. Likewise, B/E Aerospace may be able to increase its standard fit work on aircraft programs through Rockwell Collins strong relationships with the original equipment manufacturers (OEMs). Meanwhile, Rockwell Collins will benefit from B/E Aerospace’s direct airline contacts.
