Rockwell Collins Inc. agreed to acquire Carlyle Group LP (CG)’s Arinc Inc., an aviation-information management company, for $1.39 billion to help expand the aerospace-equipment maker’s business outside the cockpit.
The transaction announced today will end six years of Arinc ownership by Carlyle, which bought the company from carriers including American Airlines in 2007. The purchase will combine Arinc’s networks with Rockwell Collins’s avionics and cabin technologies, according to a statement.
“Rockwell Collins is in the front of the plane with avionics,” said Michael Derchin, a Stamford, Connecticut-based analyst at CRT Capital Group LLC whose rating of fairly valued on the stock is the equivalent of hold. “Arinc is an extension into that part of the navigational-system world.”
The acquisition is Cedar Rapids, Iowa-based Rockwell Collins’s first under Chief Executive Officer Kelly Ortberg, 53, who took the post Aug. 1 as Clay Jones retired. When completed, the deal will shift the company’s business mix to 54 percent commercial and 46 percent government, Rockwell Collins said.
Rockwell Collins’s current sales breakdown is 52 percent from government and 48 percent commercial, Cindy Dietz, a company spokeswoman, said by e-mail. Arinc will have about $600 million in revenue this year, according to Rockwell Collins, which said last month that sales in its current fiscal year would be about $4.65 billion.
The deal is the largest in aerospace and defense announced this year in North America, according to data compiled by Bloomberg. The previous largest transaction was Precision Castparts Corp. (PCP)’s $600 million purchase of Permaswage SAS from Bridgepoint Advisers Ltd., the data show.
Ortberg is trying to expand Rockwell Collins’s reach beyond aircraft by acquiring Arinc’s computer networks, which help handle data for pilots, passengers, regulators and airports. Arinc also provides communication and information-technology services to industries outside aviation, including railroads.
Until the sale to Carlyle, for which terms weren’t disclosed, Arinc had been owned by airlines since its founding in 1929 to handle air-to-ground communications. The Annapolis, Maryland-based company now helps more than 14,000 commercial aircraft make more than 100,000 takeoffs and landings daily, according to its website.
While Rockwell Collins’s 28 percent stock-price surge this year through Aug. 9 beat the 19 percent advance for the Standard & Poor’s 500 Index, that jump only left it in the middle of the pack compared with peers. The S&P Supercomposite Aerospace & Defense Index of 28 companies rose 31 percent in 2013.
Rockwell Collins closed at $74.42 on Aug. 9. Carlyle closed that day at $27.05, leaving its 2013 gain at 3.9 percent.
Ortberg joined Rockwell Collins in 1987 and has been president since September. He had previously led the Government Systems unit and helped oversee development of equipment for the Boeing Co. (BA) 787 while running the Commercial Systems division. Jones remains with the company as non-executive chairman.
In a June 19 interview at the Paris Air Show, Ortberg said the company would seek to win work on cockpit avionics as Boeing upgrades the 777, the planemaker’s biggest twin-engine model. Rockwell Collins displaced Honeywell International Inc. (HON) last year as Boeing’s supplier for cockpit displays on the 737 jet.
Citigroup Inc. (C) acted as Rockwell Collins’s financial adviser for the Arinc transaction.
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