B/E Aerospace Will Split in Two

NEW YORK (The Deal) -- B/E Aerospace (BEAV) said Tuesday it will split into two independent companies, part of a strategic review kicked off last month in the face of potential pressure from activists.

Wellington, Fla.-based B/E said that its board had commenced the process of separating its distribution and logistics arm from its business manufacturing aircraft seating and other cabin interior equipment. The company called the split "an important step" in its review process but hinted that further actions could follow, saying the board is continuing to "aggressively pursue" other steps to enhance value.

"This decision reflects B/E's ongoing commitment to optimize the distinct needs of each of our businesses and the company's strategic priorities, consistent with our focus on driving shareholder value," company chairman and CEO Amin Khoury said in a statement.

Post-split Khoury said that each company would have more flexibility to determine optimal capital structure, free cash flow allocation and growth strategy.

The distribution business would rank as one of the world's largest providers of aerospace fasteners, consumables and logistic services to the airlines and manufacturers as well as energy firms and other verticals, generating about $365 million in Ebitda on sales of $1.6 billion in the twelve months ending March 31.

The interiors unit meanwhile recorded revenue of $2.5 billion and Ebitda of about $510 million during the same period. Khoury during a conference call said that either company could be either an acquirer or a target in the quarters to come.


B/E surprised investors May 4 when it abruptly canceled a scheduled investor day and said it had hired Citigroup (C) and Shearman & Sterling to help it explore options, a move many investors believe was prompted by Relational Investors taking a 3.5% stake in the firm. The company last week said that it would postpone its annual meeting, planned for July 24, until the process was complete.

It remains to be seen whether the split will be enough to satisfy Relational, which according to sources had intended to nominate co-founder David Batchelder and managing director Matthew Hepler to B/E's board. Hepler last month described B/E as having "great core assets" and a strong position, but Relational was believed to favor a divestment of the distribution arm.

The company said Tuesday it expects to make an announcement on a new annual meeting date within the next 60 days. B/E also added to its board on Tuesday, naming one-time Honeywell International (HON) chief financial officer David J. Anderson as a director.

Though B/E's assets are well regarded, sources cautioned from the beginning that a sale was unlikely due to tax implications, as well as B/E's already sky-high valuation and a potential lack of interest by large potential buyers including United Technologies (UTX) and Honeywell.

The distribution business, which B/E cobbled together using M&A in recent years, could be of interest to a private equity firm either prior to the split or once it trades as a standalone.

Shares of B/E opened down 4%, to $95 apiece, on Tuesday as investors digested the news and its implications for a potential sale of the company. But analysts say there is still upside in a split. Sterne Agee analyst Peter Arment in a note said that in a breakup B/E's distribution business could be worth between $35 and $43 per share while the aircraft interiors business could be worth between $105 and $131 apiece.

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