“Our decision to separate the businesses was made as part of the evaluation of the Company’s strategic alternatives which has been undertaken by our management team and Board of Directors, together with our independent advisors,” said Amin Khoury, the Company’s Chairman and Co-Chief Executive Officer. “Separating these highly successful businesses into two industry-leading companies will allow each to benefit from increased management focus and operational flexibility, as well as allow the management teams and boards of directors of each business to determine the optimal capital structure, free cash flow allocation policy, growth strategy, compensation system and performance measurement metrics. This decision reflects B/E’s ongoing commitment to optimize the distinct needs of each of our businesses and the Company’s strategic priorities, consistent with our focus on driving shareholder value.”
He doesn’t mention the (perhaps) gentle push by Relational Investors that likely lead to the consideration of this move.
What will each of the two firms look like?
- Services Co. is the world’s leading distributor and value-added service provider of aerospace fasteners, consumables and logistics services to the airline and aerospace industries. This business offers the broadest range of aerospace hardware and consumables and inventory management services worldwide. With a large and diverse customer base, this business serves as a distributor for every major aerospace fastener manufacturer, offering services which include inventory management and replenishment, creative and differential supply chain solutions, special packaging and bar-coding, sophisticated parts kitting, quality assurance testing and a wide variety of purchasing assistance programs, plus the latest in electronic data interchange capability. In 2013, the business initiated an expansion into technical and logistics services and associated rental equipment for remote energy industry drilling sites. On a pro-forma basis, Services Co. had revenues of approximately $1.6 billion and EBITDA (excluding transaction expenses) of approximately $365 million, representing 22.8% of revenues, for the trailing 12 months ending March 31, 2014, as adjusted for all recent acquisitions as if they had been made as of January 1, 2013.
- The aircraft cabin interior equipment design, development, manufacturing, certification and direct sales business, which will include the Company’s commercial aerospace and business jet segments (Manufacturing Co.), is a world-leading global manufacturer of aircraft cabin interior products for both commercial airliners and business jets, including a broad range of seating products with a wide variety of comfort and entertainment features, food and beverage preparation and storage equipment, lighting systems, oxygen systems, modular lavatory systems and galley systems which are each complemented with very sophisticated, best-in-class R&D, engineering services, program management and certification services. Manufacturing Co. had revenues of approximately $2.5 billion and EBITDA of approximately $510 million, representing 20.4% of revenues, for the trailing 12 months ending March 31, 2014.
“Each of our businesses, Manufacturing Co. and Services Co., is already an industry leader, and by leveraging the benefits which we believe will result from allowing these businesses to independently pursue more focused, targeted strategies, each will be well-positioned to generate even greater value to both our customers and our shareholders,” Khoury added.
The stock, which had risen over 10% on word of the strategic review, is down over 4% in premarket trading this morning, as investors who had hoped for a partial or total sale of the company are disappointed by this morning’s spin off announcement. Given the abbreviated timeline of the review process, however, it is still possible that a suitor will come forward.
Disclosure: The author holds no position in any stock mentioned.
