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France's Safran launches $9 bln agreed bid for Zodiac Aerospace

PASCAL PAVANI | AFP | Getty Images

French aero engine maker Safran on Thursday launched a $9 billion agreed bid for seats manufacturer Zodiac Aerospace to create the world's third-largest aerospace supplier as the industry bulks up to tackle record high output plans.

The deal comes three months after Zodiac's rival B/E Aerospace agreed to be absorbed by Rockwell Collins and six years after Zodiac's family shareholders rejected an approach from Safran, branding it "opportunistic".

The two have frequently been linked as suppliers combine technologies and services to support rising aircraft production. However, some analysts have warned such a tie-up is risky as Zodiac recovers from a nearly three-year crisis in its factories that delayed Airbus and Boeing jet deliveries.

Safran Chief Executive Philippe Petitcolin said he was not worried about Zodiac's recovery from recent production and quality problems in its U.S. seat manufacturing plants and pledged not to let the deal distract Safran from development of new 'LEAP' engines for Airbus and Boeing.

"Don't worry, there will be no transfer of skills from LEAP," he told reporters in a conference call.

Zodiac has persistently vowed to stay independent and scoffed at Safran's original approach in 2010, saying any tie-up would offer "very slight" synergies.

But after a series of profit warnings, Chief Executive Olivier Zarrouati said last March that Zodiac would be "receptive to any offer that is in the interests of the company".

Airbus said this month there were still some difficulties in cabin supplies for the A350, whose deliveries have been partly held up by problems with toilets supplied by Zodiac. Zodiac says it is on course for recovery.

Petitcolin said synergies could far exceed an initial estimate of 200 million euros annually. He declined to give details of the impact on jobs or other cost savings.


Two-part deal

Under the two-part deal, Safran will launch a cash offer worth 29.47 euros per share, a 26 percent premium to Wednesday's Zodiac closing price of 23.31 euros.

The initial offer values Zodiac at just over 8.5 billion euros ($9 billion), based on Thomson Reuters data.

Zodiac shares jumped by 23 percent when trading opened in Paris in what could be their best performance in 30 years. Safran gained 0.7 percent.

Zodiac's controlling family shareholders would not take up this part of the offer, but would instead fold their shares into a subsequent merger between the two companies, based on 0.485 Safran shares for each Zodiac share.

In addition, Safran's existing shareholders would receive a special dividend of 5.5 euros per share, worth a total of 2.3 billion euros, before the deal goes ahead.

The companies said the combination would boost earnings per share from the first full financial year.

Zodiac Aerospace is controlled by a group of families that owns 23.8 percent of the stock and 36.6 percent of the voting rights and an arm of the Peugeot family, which owns 5.2 percent of the shares and holds 7.3 percent of the voting rights.

The French state owns 14 percent of Safran and will remain a shareholder of the combined group under a pact with other core shareholders.

Zodiac Aerospace is one of two major suppliers of aircraft seats alongside B/E Aerospace. The industry relies on demand for eye-catching interiors from airlines but has struggled to combine such one-off, customised projects with the factory pace and costs needed to keep up with a recent boom in jet orders.

Rockwell's acquisition of the latter, expected to be completed this spring, is designed to allow B/E to deploy Rockwell's capability with onboard connectivity to make internet-enabled seats and other cabin systems.

Other top suppliers seen as keen to expand include Honeywell , which failed to grab United Technologies in 2015.

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