Rockwell snaps up B/E Aerospace for $6.4 billion

Rockwell Collins, the aircraft component manufacturer, has inked a deal to purchase B/E Aerospace. The price set is $62 per share in stock and cash. B/E Aerospace manufactures aircraft interiors. This acquisition will enable Rockwell Collins to expand its products bouquet to major business and commercial aircraft. The total value comes to $6.4 billion in addition to a debt of $1.9 billion.

Good deal

Rockwell is a profitable company enjoying a 14 percent rise in the fiscal fourth quarter to $1.58 per share. Sales went up four percent on the quarter ending September 30. The acquisition will be completed within the spring of 2017.

The combination is expected to generate about $160 million in cost savings. The first year of acquisition will capture 90 percent and also offer double digit percentage boost in its per share earnings during the first year. Both companies anticipate that cash flow will exceed $6 billion within the next five years.

Cost savings are made possible by the elimination of public company administration of the acquired company and better purchasing power with the suppliers. Money will also be saved with the consolidation of the information technology system. The combined company will also enjoy the benefit of factory labor at considerably lower cost.

The B/E acquisition by Rockwell will permit both the companies to sell to customers of each other. It will also help to deploy the capability of Rockwell to connect onboard aircraft furniture for internet enabled seats, lavatories and a number of other cabin systems that are presently sold by B/E Aerospace. The latter has plans to use the existing dealer network of Rockwell and relationships forged with owners of business jets to know when the aircrafts are to be fitted for avionics upgrades.

Negligible overlap

It helps that Rockwell and B/E have almost zero product overlap. The former sells cabin connectivity, avionics and flight control systems. The latter is a major supplier of lighting, aircraft seats and galleys. Rockwell has at present approximately $11 billion in market value, double B/E Aerospace. The latter has $5.1 billion market value. This offer represents a premium of 22.5 percent over the closing price of B/E Aerospace.

For Rockwell, B/E brings a number of aircraft retrofit and aftermarket business. It is principally concentrated on new equipment. There was also exposure to twin-aisle aircrafts. Total sales will be evenly divided between domestic market in the United States and international markets.

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