Safran to Buy Zodiac Aerospace for $9 Billion -- 4th Update

By Robert Wall 

LONDON--France's Safran SA said Thursday it had agreed to buy beleaguered cabin-interiors specialist Zodiac Aerospace for EUR8.5 billion ($9 billion), in the latest sign of consolidation among suppliers to the world's top plane makers.

The deal would make Safran, with a combined EUR21 billion in sales, the world's No. 3 aerospace supplier to Airbus SE and Boeing Co-- United Technologies Corp. is the No. 1, ahead of General Electric Co.'s aviation business.

Boeing and Airbus, the world's largest plane makers, are putting increased pressure on their suppliers for discounts, as they seek to win orders from airlines by offering lower prices. That has caused suppliers to seek greater scale to gain efficiencies.

The tie-up comes only three months after Rockwell Collins Inc. agreed to pay $6.4 billion to buy Zodiac's chief rival, B/E Aerospace Inc., uniting two of the biggest plane-parts suppliers.

But some deals have been opposed by plane makers on concerns that consolidation could go too far. Honeywell International Inc. pulled the plug on its $90 billion bid for United Technologies Corp. less than a year ago amid opposition from Airbus and Boeing.

Safran will pay EUR29.47 a share for Zodiac in a tender offer. If 50% of shares are tendered, the companies will merge based on an exchange ratio of 0.485 a Safran share for each Zodiac share. The structure will allow Zodiac's family shareholders and two institutions to remain investors in the combined company. Including debt, the deal is valued at EUR9.7 billion.

Safran will also pay a EUR5.50-a-share special dividend to its shareholders before the deal closes.

Both boards back the deal, which still requires approval from shareholders and regulators.

Safran and Zodiac said the deal would generate at least EUR200 million in annual pretax savings, half of which would come in the first year.

The deal shouldn't create big layoffs, because of the complementary nature of the businesses, Safran Chief Executive Philippe Petitcolin told reporters.

Safran, which makes everything from plane wiring to aircraft engines, has long been interested in acquiring the smaller supplier. Zodiac in 2010 rejected a takeover proposal from the company.

This time a sale made more sense for shareholders and employees, Zodiac CEO Olivier Zarrouati said.

Negotiations between the two began late 2016 and moved quickly, Safran Chairman Ross McInnes said. The French government, a Safran shareholder, was aware of the talks and gave its blessing to the deal, he said.

Almost half the combined company's employees would be in France, with a sizable footprint in the U.S.

The takeover plan comes after a turbulent period for Zodiac. The company fell behind on providing seats to airlines for Boeing and Airbus jets, angering customers, delaying plane deliveries and causing some carriers to seek new suppliers. Airbus publicly chastised Zodiac for late delivery of plane toilet components for the European plane maker's new A350 long-range jet.

The companies said Safran would help Zodiac more quickly overcome problems in its seats- and plane-interior business.

Mr. Petitcolin added that resources wouldn't be diverted from a key aircraft engine Safran builds in partnership with General Electric Co. for Airbus and Boeing.

Safran plans to extend its CEO's mandate by three years to help manage the integration of Zodiac and oversee a big jump in plane production.

Shares in Zodiac had declined more than 10% over the past two years, despite record plane deliveries during the period.

Safran said it would finance the transaction from cash, proceeds of already agreed disposals, existing debt facilities and a EUR4 billion bridge loan. It said it would target an investment-grade profile upon closing and a dividend payout plan of around 40% of adjusted net income.

Write to Robert Wall at [e-mail]

(END) Dow Jones Newswires

January 19, 2017 07:02 ET (12:02 GMT)

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