Boeing Co.'s (BA) - Get Boeing Company Report two major suppliers, airplane parts maker Woodward Inc. (WWD) - Get Woodward, Inc. Report and composites technology group Hexcel Corp (HXL) - Get Hexcel Corporation Report, are set to merge in all-stock deal that values the combined companies at $6.4 billion.
Hexcel shareholders will own 45% of the combined group, which the companies said will be re-named Woodward Hexcel and will be lead by Hexcel CEO Nick Stanage. The structure of the tie-up values Hexcel at $76.23 per share, a modest 4.5% premium to its Friday closing price.
Collectively, Woodward-Hexcel is large enough to generate $1.1 billion in operating earnings from around $5.3 billion in sales, much of which will come from Boeing, Woodward's biggest customer. Management also expects to return $1.5 billion to shareholders over the 18 months that follow the closing of the deal.
“Our two companies are each independently working toward addressing the sustainability and efficiency needs of our customers," said Woodward CEO Tom Gendron, who plans to move to the chairman's role once the merger is closed later this year. "This merger accelerates our technology investments and creates greater benefits and growth opportunities than either company could have achieved alone."
"Both Woodward and Hexcel have attractive growth trajectories, with strong aftermarket positions and increased composite penetration driving our respective outlooks," he added.
Hexcel shares were marked 9.5% higher in early trading Monday to change hands at $79.85 each while Woodward shares were seen 4.72% higher at $127.72 each.
"Tom Gendron and Nick Stanage made a convincing case for highly parallel cultural and strategic orientations of each company, with Woodward's core technologies in control solutions (power, motion, combustion) and Hexcel's in advanced materials science and composites both highly core for how each serves both A&D and Industrial," said Oppenheimer analyst Christopher Glynn, who carries a market-perform rating on Woodward.
"Similarly, both realistically noted both portfolios' core technologies align to lightweighting/fuel-efficiency/emissions, noise reduction, and strength/durability. with both serving nose to tail applications on the aircraft. Revenue synergy expectations include quick-to-realize on channel reach, with technology/R&D runway longer-term."