Rockwell Collins to Buy B/E Aerospace for $6.4 Billion

Rockwell Collins Inc. agreed to pay $6.4 billion to buy B/E Aerospace Inc. in a deal that would unite two of the biggest suppliers to airlines and plane makers.

The proposed deal, confirmed by the companies on Sunday, continues the consolidation of the aerospace industry over the past two years as suppliers adjust to pressures from Airbus Group SE and Boeing Co. to cut costs.

The deal requires approvals by regulators and shareholders and values B/E Aerospace at $62 a share in cash and stock, a 22.5% premium to Friday's closing share price. The Wall Street Journal reported Saturday that the companies were in advanced talks.

Rockwell Collins Chief Executive Kelly Ortberg said in an interview that the combination offered substantial cost synergies and the ability to cross-sell electronics and plane fittings, and positions the enlarged company to lead the development of "smart" aircraft.

Aerospace companies are investing heavily in connecting aircraft systems and passenger facilities via satellite with the internet. High-speed broadband access is becoming more commonplace on commercial aircraft, allowing passengers to stream their own content and business fliers to use plush seats and suites as virtual offices in the sky.

A completed deal would add to Rockwell's portfolio focused on cockpit and cabin systems and other electronics for passenger, business and military jets.

Mr. Ortberg said it would also triple the value of what the Cedar Rapids, Iowa-based company supplies for a typical widebody jet and double that for narrowbody planes.

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. The company has been on a tear over the past year, winning half of the market for coach seats and an even bigger slice of luxury business-class seats that can cost more than $100,000 each.

Amin Khoury, B/E's founder and chairman, said in an interview that airlines are involved in an "amenity battle" to provide better entertainment and connectivity in business and coach cabins. Carriers are also looking to connect cabin systems such as food carts and galleys to ease maintenance and improve efficiency, he said.

Both companies face challenges such as a stagnant business jet market and a slowdown in orders for widebody jets, the most valuable market for their products.

Mr. Ortberg acknowledged the short-term market pressures, but said hundreds of older widebodies are expected to be upgraded with new seats and systems over the next several years.

A number of aerospace and defense companies and assets have changed hands recently. 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 faced 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 & 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. Rockwell said its earnings increased 13%, while its sales rose 4.4%. Its sales projection for the recently started business year was short of Wall Street estimates.

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.

Write to Doug Cameron at [e-mail], Dana Mattioli at [e-mail] and Dana Cimilluca at [e-mail]

(END) Dow Jones Newswires

October 23, 2016 23:25 ET (03:25 GMT)

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