Terms of the deal call for Cedar Rapids, Iowa-based Rockwell Collins to pay $34.10 in cash and stock worth $27.90 apiece for a total consideration of $62 per share in cash and stock for B/E. The deal values B/E's equity at about $6.4 billion, with Rockwell Collins also set to assume $1.9 billion in net debt.
Wellington, Fla.-based B/E is a maker of aircraft seats and other interior items, including galleys, lighting systems and modular lavatories. The company has long been a subject of takeover speculation, having weathered an activist campaign earlier in the decade that resulted in the spinning off of its KLX Aerospace distribution business as an independent.
The spin did not ease pressure on the company, which in recent quarters has lost some key battles, including a new business class seat contract with United Continental Holdings Inc. (UAL) - Get Report to archrival Zodiac Aerospace SA. The takeout price, though a premium of 22.5% to B/E's Friday close, is well off the $70 per share price it enjoyed during the peak of activist-related M&A speculation and in-line with where it traded when the KLX spin was completed.
But B/E does enjoy a strong reputation in the industry, and Rockwell Collins is hoping the acquisition will help it to capitalize on the ongoing commercial aircraft sale surge. B/E has an installed base worth more than $12 billion that can be sold aftermarket and replacement gear, and a backlog of nearly $9 billion in new orders.
Rockwell Collins, a maker of flight deck avionics, cabin electronics, mission communications and other products, said it intends to create a new interiors division led by B/E CEO Werner Lieberherr. The combined company would have a more diverse product mix and more geographical exposure, with more than 30,000 employees and pro forma annual Ebitda of nearly $1.9 billion on sales of more than $8 billion.
"This transformational acquisition is consistent with our strategy to accelerate growth and build value through market-leading positions in cockpit and cabin solutions," Rockwell Collins chairman and CEO Kelly Ortberg said in a statement. "We see tremendous opportunity to better serve our commercial aviation, business jet and military customers through broader offerings."
Ortberg said that the company expects to generate about $160 million in annual cost savings and $6 billion in free cash flow over the next five years as a result of the combination. He also said that he sees opportunities to expand the combined company's revenue base by tapping into Rockwell's business jet dealer network and military aircraft connections to sell B/E products.
Rockwell Collins expects to finance the cash portion of the transaction with debt financing, saying that "a significant portion" of which has been committed. Post-deal the company expects to have net debt of about $7.5 billion, with the hope of paying down $1.5 billion of the new debt by the end of 2019.
Post-deal Rockwell Collins will increase the size of its board to 11 members, adding two B/E directors.
Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.