Rockwell Collins To Buy B/E Aerospace In $8.3 Bln Deal; Q4 Profit Rises

(RTTNews) - Rockwell Collins (COL) and B/E Aerospace (BEAV) announced that they have entered into a definitive agreement under which Rockwell Collins will acquire B/E Aerospace for approximately $6.4 billion in cash and stock, plus the assumption of $1.9 billion in net debt.

Separately, Rockwell Collins reported fourth quarter fiscal year 2016 earnings per share from continuing operations increased 14% to $1.58, compared to $1.38 in the prior year. Total sales for the fourth quarter of fiscal year 2016 were $1.45 billion, a 4% increase from the same period in fiscal year 2015.

In addition, B/E Aerospace reported that its third quarter 2016 revenue organic growth was 8 percent, operating earnings increased 76 percent, operating margin was 18.0 percent and net earnings and net earnings per diluted share increased 82 percent and 89 percent, respectively, as compared with the third quarter of 2015. It raised its full year guidance for 2016.

Under the terms of the agreement, each B/E Aerospace shareowner will receive total consideration of $62.00 per share, comprised of $34.10 per share in cash and $27.90 in shares of Rockwell Collins common stock, subject to a 7.5% collar. This represents a premium of 22.5% to the closing price of B/E Aerospace common stock on Friday, October 21, 2016.

On a pro forma basis, Rockwell Collins would have nearly 30,000 employees, $8.1 billion in revenues and $1.9 billion in EBITDA for the twelve months ending September 30, 2016.

"We expect to generate significant run-rate cost synergies and over $6 billion in free cash flow over the next five years with expected free cash flow conversion of greater than 100 percent," said Kelly Ortberg, Chairman, President and Chief Executive Officer of Rockwell Collins.

The transaction is expected to generate run-rate pre-tax cost synergies of approximately $160 million. In addition, Rockwell Collins expects to make certain conforming purchase accounting adjustments resulting in improved pre-tax earnings of approximately $60 to $90 million per year for the first six years after the acquisition. The transaction is expected to be double-digit accretive to earnings per share in the first full fiscal year.

Upon completion of the transaction, which is expected in the spring of 2017, current B/E Aerospace shareowners will own approximately 20 percent of the combined company.

Rockwell Collins expects to finance the cash portion of the transaction with debt financing, a significant portion of which has been committed. Upon completion of the transaction, Rockwell Collins is expected to maintain a strong investment grade credit rating with net debt of approximately $7.5 billion, and plans to maintain its current dividend policy. Rockwell Collins intends to pay down $1.5 billion of the new debt by the end of its fiscal 2019 while curtailing its share repurchase program to a level sufficient to offset dilution.

The transaction, which was unanimously approved by the boards of directors of both companies, is subject to the approval of Rockwell Collins and B/E Aerospace shareowners, regulatory approvals and other customary conditions.

Upon close of the transaction, Rockwell Collins will increase the size of its Board to 11 members with the addition of two B/E Aerospace board members. Werner Lieberherr, CEO of B/E Aerospace, will become Executive Vice President and Chief Operating Officer of a newly created aircraft interior systems segment for Rockwell Collins.

Rockwell Collins announced financial guidance for its fiscal year 2017. This financial guidance is based on stand-alone expectations for Rockwell Collins and does not contemplate the acquisition of B/E Aerospace that was separately announced today. The Company expects revenue between $5.3 billion and $5.4 billion.

Rockwell Collins reported that its fourth-quarter net income rose to $208 million or $1.58 per share from $184 million or $1.38 per share in the prior year. Total sales for the fourth quarter of fiscal year 2016 were $1.45 billion, a 4% increase from the same period in fiscal year 2015. Analysts polled by Thomson Reuters expected the company to report earnings of $1.57 per share and revenues of $1.48 billion for the fourth-quarter. Analysts' estimates typically exclude special items.

Separately, B/E Aerospace reported that its third-quarter net earnings grew to $83.3 million or $0.83 per share from $45.8 million or $0.44 per share in the prior year.

"Third quarter revenues increased 8 percent driven by double-digit organic revenue growth at our commercial aircraft segment. Third quarter earnings per share increased 14 percent reflecting robust organic revenue growth and the ongoing benefits from our capital allocation program. We are today increasing our 2016 financial guidance," stated Amin J. Khoury, Executive Chairman of B/E Aerospace.

B/E Aerospace's prior year third quarter results included after-tax charges totaling $30.5 million, or $0.29 per share, related to its 2015 cost reduction program. For comparability purposes, the prior year three month period ended September 30, 2015 and corresponding year-over-year comparisons are presented excluding these charges unless otherwise indicated.

B/E Aerospace's quarterly revenues grew to $732.7 million from $679.8 million last year.

Analysts polled by Thomson Reuters expected the company to report earnings of $0.80 per share and revenues of $707.45 million.

Bookings during the third quarter of 2016 were approximately $835 million and the book-to-bill ratio was approximately 1.15 to 1. As of September 30, 2016, backlog increased by approximately $100 million to approximately $3.4 billion, while awarded but unbooked backlog was approximately $5.6 billion. Total backlog, both booked, and awarded but unbooked, was approximately $9.0 billion.

B/E Aerospace now expects a full year 2016 revenue growth rate of approximately 6 percent and has raised its 2016 full year net earnings and net earnings per diluted share guidance to approximately $330 million and approximately $3.28 per share, respectively.

B/E Aerospace announced that its Board of Directors declared a quarterly dividend of $0.21 per outstanding share of the Company's common stock. The dividend is payable on December 16, 2016 to shareholders of record at the close of business on November 21, 2016.