France's Safran expects to achieve synergies amounting at least €200 million ($213 million) as part of its planned acquisition of aircraft systems and interiors specialist Zodiac Aerospace.
The two sides are holding exclusive discussions regarding a tie-up.
Safran says it has identified annual pre-tax cost synergies of €200 million which, it says, will "accelerate in the long term". Half of these synergies should be achieved in the first year, it states, increasing to 90% in the second. These synergies would arise from areas including procurement.
It adds that the transaction would have a "double-digit accretive effect" on its earnings-per-share from the first full fiscal year of consolidation.
Safran's bid follows Zodiac's efforts to recover its operations after a period of poor performance, the result of production difficulties which held up delivery of seats and cabin fittings to airframers.
Airbus had been particularly vocal over the knock-on effect on its A350 programme, attributing a slow ramp-up of production and hold-ups in deliveries partly to the Zodiac situation.
Safran says its acquisition will aid the recovery of Zodiac's interiors businesses. "Our industrial expertise will also accelerate the return to their historical levels of profitability in the seats and cabin activities," says Safran chief executive Philippe Petitcolin, who would remain as the head of the company.
Under the acquisition plan Zodiac's capabilities in cabin interiors, electrical systems, lighting, safety equipment and other products would be combined with Safran's lines which include power systems, avionics, landing-gear assemblies, actuators and nacelles.
Safran is also a partner in the CFM International venture which produces the CFM56 and Leap engine range.
It says the tie-up would result in a company offering a "comprehensive produce range", and help to limit exposure to aircraft delivery cycles. It would also improve Safran's position in relation to US dollar-denominated costs through Zodiac's presence in North America.
The overall entity would employ some 92,000 personnel with around half of them in France.
Safran's board is "unanimously supportive" of the deal, says chairman Ross McInnes. The proposal involves a cash offer of €29.47 per Zodiac share – a premium of more than 24% on the 18 January stock price – and a subsequent merger would offer 97 Safran shares for 200 Zodiac shares.
Zodiac reference shareholders hold 32% of the company and will remain long-term shareholders of the combined entity. These reference shareholders include founding families and two investment funds.
Safran would also distribute a special dividend of €5.50 per share to current shareholders, conditional upon the merger. The tender offer is subject to an acceptance threshold of 50% of Zodiac's share capital.
Zodiac chairman Olivier Zarrouati would become deputy chief executive of the merged company, with Bernard Delpit as chief financial officer. The Safran board would comprise 20 members.
Safran expects the tender offer to be completed by the end of the fourth quarter of 2017 and the merger to take place in early 2018.
Source: Cirium Dashboard
