By Chaitali Halder Bag

Larnaca, Cyprus. 19 January 2017. Safran  closed the deal to buy Zodiac Aerospace for nearly 9Billion USD. Zodiac Aerospace’s founding families, FFP, Fonds Stratégique de Participations and the French State intend to remain core shareholders of Safran with around 22 per cent  of its capital and upon completion of the transaction, to sign a shareholders agreement comprising a two-year lockup provision.

The transaction would create a global leader in aircraft equipment, allying the market leading positions, expertise, technologies and talents of both Safran and Zodiac Aerospace. The new entity would combine Safran’s capabilities in landing gear, wheels and brakes, nacelles, power systems, actuation and avionics, with Zodiac Aerospace’s leading positions in seats, cabin interiors, power distribution, lighting, fuel, oxygen and fluid systems and safety equipment.In electrical systems, Zodiac Aerospace’s assets would reinforce Safran’s portfolio of technologies and position the group ideally for future developments towards the more electrical aircraft.

Ross McInnes, Chairman of Safran’s Board of Directors stated: “Safran’s Board of Directors is very proud to contribute to a new chapter in Safran’s story. This planned acquisition is fully consistent with the strategy we clearly outlined almost a year ago at our Capital Markets Day, to bolster Safran’s core aerospace activities with quality businesses which share our DNA: technology, tier-1 positions and recurring revenue streams. It will strengthen our position and create significant value through integration and synergies. The Board of Directors is unanimously supportive because it is favorable for Safran’s shareholders, employees and partners. I extend a warm welcome to Zodiac Aerospace’s teams with whom we are excited to embark on this journey.”

Under the terms of the contemplated combination, Safran’s Board of Directors would comprise 20 members, including representatives of Zodiac Aerospace’s reference shareholders. Ross McInnes would be Chairman of the Board. Philippe Petitcolin would be CEO and Olivier Zarrouati, Chairman of Zodiac Aerospace’s Management Board, would become deputy CEO. Bernard Delpit would be CFO.

Didier Domange, Chairman of Zodiac Aerospace’s Supervisory Board, said: “The creation of this new global leader in the aerospace industry is led by a strong industrial rationale and a long term vision. The new group will be ideally positioned to support its clients in their ambitious programs for the future. We are delighted to participate in the combination of two leaders of the industry with complementary positions and strong innovation abilities dedicated to their customers.”

Safran and Zodiac Aerospace would merge based on an exchange ratio of 97 Safran shares (ex-special dividend) for 200 Zodiac Aerospace shares (or 0.485 Safran share (ex-special dividend) per Zodiac Aerospace share), consistent with the tender offer price after taking into account the special dividend. Family shareholders and two institutional investors (FFP and Fonds Stratégique de Participations) would undertake to contribute their shares to the merger.  This is prior to and conditional upon the merger, and subject to the tender offer being successful and to Safran and Zodiac Aerospace’s respective shareholders’ approval of the merger, Safran would distribute a special dividend of €5.5 per share, for a total amount of approximately €2.3bn to its shareholders.

On a pro forma basis, including Safran’s world leading propulsion business, the combined group would have around 92,000 employees (of which more than 45,000 in France), c. €21.2bn in adjusted revenues  and c. €2.7bn in adjusted recurring operating income.

Philippe Petitcolin, CEO of Safran, said: “The acquisition of Zodiac Aerospace represents a unique opportunity at this point in Safran’s development, just a few months after initiating the refocus of the group on our core activities of Aerospace and Defense. The technological complementarities will ensure that we accelerate domains as strategic as critical systems and the more electrical aircraft, which make up 40% of Zodiac Aerospace’s activities. Our industrial expertise will also accelerate the return to their historical levels of profitability in the seats and cabin activities. Finally, and above all, the strength of Safran’s managerial talent and the timing of this transaction will be Pro forma based on Safran LTM figures at June 2016 and Zodiac Aerospace’s LTM figures at August 2016. Assuming 100% of targeted shares are tendered. Post phased synergies, before PPA, and synergies and cost of implementation ensure the success of integrating Zodiac Aerospace into our Equipment businesses while Propulsion is focused on the LEAP programme. I am eager to drive this strategic move.”

Safran will finance the cash portion of the transaction and its special dividend with a combination of cash on hand, including future proceeds from the disposals of Safran Identity & Security, existing committed undrawn facilities and a €4bn fully underwritten bridge loan. Upon completion of the transaction, Safran would target an investment grade profile with a targeted adjusted net debt / adjusted EBITDA ratio around 2.5x. After the completion of the transaction, Safran would maintain its practice of distributing an annual dividend amounting to approximately 40 per cent of adjusted net income.

A modification of Safran’s bylaws extending the age limit of the CEO from 65 to 68 years will be proposed by Safran’s Board of Directors to the next shareholders’ meeting.

Safran’s Board of Directors unanimously approved the principle of the planned transaction and decided to submit it to the group’s employee representatives. Zodiac Aerospace’s Supervisory Board unanimously approved the principle of the planned transaction and decided to submit it to Zodiac Aerospace’s employee representatives. The finalization of a binding agreement is subject to the completion of procedures with Safran’s and Zodiac Aerospace’s respective employees representative bodies under applicable laws and regulations. The finalization of the transaction would be subject to the approval of Safran’s and Zodiac Aerospace’s shareholders, relevant antitrust clearances, regulatory approvals and other customary conditions. The completion of the tender offer is expected by the end of the 4th quarter 2017 and completion of the merger is expected early 2018.

Olivier Zarrouati, Chairman of Zodiac Aerospace’s Management Board, said: “The combination with Safran will lead to the creation of a world leader, with a high technological know-how, able to shape the future of aerospace. It will benefit our employees, our clients and our shareholders; it represents a new step in the consolidation of the aerospace industry. We are proud of Zodiac Aerospace’s industrial and commercial achievements and excited by the prospect of joining Safran and creating a global leader, with a strong European base.”

Under the terms of the contemplated agreement Safran would launch a tender offer on Zodiac Aerospace’s shares at €29.47 per share, representing a premium of 24.6 per cent on Zodiac Aerospace’s closing price on 18th, January, 2017, 36.1 per cent on Zodiac Aerospace’s 3-month volume-weighted average price. The tender offer would be subject to an acceptance threshold of 50% of the share capital of Zodiac Aerospace. Family shareholders and two institutional investors (FFP and Fonds Stratégique de Participations) which are Zodiac Aerospace’s reference shareholders and in total represent approximately 32 per cent of Zodiac Aerospace’s share capital, intend to remain long-term shareholders of the combined entity and would undertake not to tender their shares into the public offer which is subject to the tender offer being successful and to Safran and Zodiac Aerospace’s respective shareholders’ approval of the merger.

Bank of America Merrill Lynch and Lazard acted as financial advisors to Safran, BDGS served as legal counsel, and Bank of America Merrill Lynch acted as bridge underwriter. BNP Paribas and Rothschild acted as financial advisors to Zodiac Aerospace and Bredin Prat served as legal counsel.