Safran and Zodiac Take Flight

Posté le 1ᵉʳ sept. 2018

It may have taken eight years, but Safran’s patience has finally paid off. That’s the length of time negotiations for the friendly takeover with Zodiac Aerospace lasted. Setting aside questions of financing, the biggest obstacle to the deal was convincing the sellers, and one minority shareholder in particular - the activist fund TCI - of the merits of the merger. Even so, the length of the courtship between the aerospace firms was exceptional.

The logic behind the deal made sense from an industrial perspective between Safran, the world’s number three aviation company, and Zodiac Aerospace, a maker of aircraft seats. Under the stewardship of Philippe Petitcolin, an engineer by training who became head of the company in 2015, Safran has managed significant growth by diversifying an activity that had long been confined to aircraft engines. The fundamentals of the deal are sound: In the Petitcolin era the market capitalization of the company has doubled to more than $45 billion.

A persistent suitor…and a demanding fiancée

On paper, the deal seemed to be win-win: a combined turnover of $23 billion, $230 million in synergies annually. Yet Zodiac’s principal shareholders remained reluctant. However after two difficult years that saw profit warnings, plunging revenues, tightening margins and a haemorrhaging of clients, the shareholders of the target company finally accepted Safran’s overtures. Carried out in total secrecy, negotiations were particularly complex, due to the demands of the seller. With shares in Safran valued at 4.7% UK fund TCI blocked the move, calling into question the logic of the deal and the desire of an acquirer in rude health opening its doors to a relatively sick patent.

Multi-billion dollar deal

In the end the agreement reached in May 2017 was simplified. An uncapped all-cash public tender offer of 25 euros per share with the right to exchange for shares in Safran at a fixed rate (with a three-year lock in, a first in France). When all is said and done, Zodiac will pay a total of 9.9 billion dollars. In addition, Safran assures the engagement of institutional investors (FFP, FFP Invest and FSP) and family shareholders to provide around 27% of the capital of Zodiac.

On the evening of March 2nd 2018, following the end of the public offer period Safran and Zodiac tied the knot. The new company became the number two aircraft equipment manufacturer in the world and the number three aerospace company overall, excluding aircraft manufacturers. The French group is now in the big leagues and can take on the likes of UTC and GE Aviation.