Activist Eases Off B/E Aerospace

NEW YORK (The Deal) -- B/E Aerospace (BEAV) has apparently bought itself some time with its announcement Tuesday that it would split itself into two publicly-traded companies.

Wellington, Fla.-based B/E Aerospace has been under pressure from activist investor Relational Investors LLC, a San Diego-based hedge fund that according to sources had been planning to nominate two candidates to the aerospace manufacturer's board. But a source close to the situation said late Tuesday that Relational is reconsidering whether it will push for board seats following B/E Aerospace's announcement that it would spin off its distribution business to shareholders.

B/E Aerospace on May 4 surprised shareholders by canceling an investor meeting and announcing it was exploring options. The company last week postponed its annual meeting but said Tuesday it intends to set a new meeting date in the next 60 days.

With the new meeting now likely to occur late in the year, the source said that Relational might see value in giving B/E Aerospace time to pursue a spinoff and then nominating candidates at the 2015 meeting, if it sees fit.

A truce could further pressure B/E Aerospace shares, which dropped more than 4.5% on Tuesday after the company said it was splitting instead of selling. B/E Aerospace stressed Tuesday it would continue to explore alternatives, but a pull back by Relational could be viewed as a signal that no deal for B/E Aerospace is likely until the spinoff is completed in 2015.

Canaccord Genuity analyst Ken Herbert on Wednesday lowered B/E Aerospace to a hold on the decreasing prospects for a sale of the entire company.

The decision to split instead of sell was not a surprise, as industry sources said that B/E Aerospace's high valuation coupled with tax considerations made a spinoff more likely than an outright sale or divestiture of the distribution business to a third-party buyer. The spin would allow B/E Aerospace to exit the distribution business in a tax-friendly manner.

Post-split both businesses could be either a buyer or a seller. B/E Aerospace's core business as a maker of aircraft interiors and seating products is well regarded, and the company could be a target for German seating manufacturer Recaro GmbH & Co. KG or combine with similarly-sized and focused Zodiac Aerospace SA of France.

B/E Aerospace has bought two interiors companies in the five weeks since announcing it was exploring options, acquiring Emteq Inc. of New Berlin, Wis., and Germany's F+E Fischer + Entwicklungen GmbH & Co. KG for a combined $470 million.

The distribution arm could be a tougher sell to a strategic buyer, but private equity has shown an interest in logistics assets of late. Distribution is a highly-fragmented business, and an independent company with either a currency of its own or backed by private dollars could find numerous targets available to help build scale.

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