January 30, 2017    3 minute read

Safran Buys Zodiac Aerospace: A New Leader Takes Off?

Cleared for Takeover    January 30, 2017    3 minute read

Safran Buys Zodiac Aerospace: A New Leader Takes Off?

After a first aborted attempt in 2010, Zodiac has ended up accepting a takeover bid made by Safran. The latter has launched an agreed tender offer (a type of public takeover) at €29.47 per share, which represents a 26.7% premium over its closing share price on the January 18th of this year. This merger could create a global leader in the aircraft sector, focusing on its main products: engines and aircraft equipment.

With a combined turnover of €21bn – ranking them third globally in this sector – their financial structure should increase in efficiency after the merger, with cost synergies estimated at €200m before tax. Finally, this operation and the optimisation of the group’s financial structure should enable Safran to access a strong investment grade rating (signalling a low risk of debt default).

Could Zodiac’s Shareholders have Refused?

So, what are the aspects of the offer that helped gain acceptance from the shareholders of Zodiac who had refused six years earlier? First, Zodiac has repeatedly faced industrial difficulties in the years since, including delays in the delivery of aeroplane seats for their contracts with Airbus and Boeing.

Then, the recent acquisition of B/E Aerospace – Zodiac’s main competitor in the seats – by Rockwell Collins, which occurred in October 2016, accelerated the merger process between the two companies.

Finally, the terms of the offer are all to the benefit of the shareholders of Zodiac, who may sell their shares for significant premiums or exchange their shares on the basis of 0.485 Safran share for 1 Zodiac share, affording them a good deal either way. Since the family shareholders of Zodiac and other institutional shareholders have chosen to remain, the takeover bid concerns 67% of Zodiac’s outstanding shares.

Bright Horizons for Safran?

With this acquisition worth approximately €10bn, Safran has chosen to strengthen its aeronautical activities, after disengaging from the security industry with the sale of its Morpho division for €3bn last year. On a pro forma basis, the new group would generate approximately €21 bn in revenue and €2.7bn in recurring operating income. Present in more than 60 countries and employing 92,000 employees, this new entity has all the characteristics to establish its position as a major player in the market.

Shareholders are also confident following announcements made by the group’s representatives revealing a 10% gain in earnings per share through the transaction. Moreover, Safran also undertook to pay its shareholders an exceptional dividend of €5.50 per share before the closing of the merger. Finally, Safran also promises to continue to distribute 40% of its net profit in dividends in the years to come.

Safran Aims for the Sky

It may have begun as one of his predecessor’s objectives, but it is Philippe Petitcolin, the current CEO of Safran, who has succeeded in completing this operation by convincing the family shareholders who controlled Zodiac.

The takeover, taking place in the context of a consolidating sector, will likely create a world leader in the aeronautical equipment sector by combining the expertise, technologies, talents, and leading positions of Safran and Zodiac. The finalisation of the public tender offer is expected at the end of the fourth quarter of this year, for an effective merger in early 2018.


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