Cobham Plc agreed to buy Aeroflex Holding Corp. for $920 million in cash as the world’s No. 1 manufacturer of warplane-refueling gear makes its biggest-ever acquisition to expand in commercial markets.
Cobham is offering $10.50 a share, and will also take on $540 million of debt, the Wimborne, England-based company said today in a statement. Aeroflex, a manufacturer of radio and microwave products and test equipment with its headquarters in Plainview, New York, closed at $8.31 yesterday.
Buying the U.S. supplier to space, avionics, medical and energy clients spanning Boeing Co. to Nokia Oyj will reduce Cobham’s reliance on a shrinking defense market, which will account for 59 percent of group revenue, down from 65 percent. The deal follows the purchases of Axell Wireless Ltd. last May and satellite-equipment supplier Thrane & Thrane A/S in 2012.
“Given the mix of Aeroflex, the acquisition really helps us change the shape of our portfolio so we continue to get more exposure to growing commercial end markets,” Chief Executive Officer Bob Murphy said on a conference call today. “That’s what’s going to help us really deliver sustainable growth.”
Cobham traded down 7.2 pence, or 2.3 percent, at 305 pence as of noon in London after earlier advancing as much as 4 percent. The stock has gained 11 percent this year, following an advance of 24 percent in 2013, valuing the company at 3.29 billion pounds ($5.5 billion).
The acquisition, which involves common shares worth about $895 million, plus restricted and performance stock, will create a group with 2.19 billion pounds in annual sales, about 18 percent of which will come from Aeroflex, and an operating profit of about 230 million pounds.
“At first glance, this looks like a good deal with plenty of opportunity to create value,” London-based Liberum analyst Ben Bourne said in a note to investors, highlighting synergies between the companies in microelectronics.
The deal will be “significantly accretive” to underlying profit next year and have a “broadly neutral impact” this year, Cobham said. It may give earnings a 7.3 percent boost in the first full year, according to Bloomberg calculations, rising to 8.1 percent in the second year before any synergies.
Cobham, which anticipates one-time reorganization costs of 126 million pounds and 50 million pounds in annual savings, will sell 65 million ordinary shares to help fund the acquisition, representing about 6 percent of its share capital.
The U.K. company said it’s paying a multiple of 10.5 times adjusted earnings before interest, tax, depreciation, and amortization for Aeroflex, based on 2014 consensus estimates. Net debt will increase to 2.5 times earnings on the same basis, a level “the board feels is appropriate,” Murphy said.
Aeroflex raised $233 million in an initial public offering in 2010 after being owned by Golden Gate Capital, Veritas Capital, and a Goldman Sachs Group Inc. buyout fund. The U.S. company has products in its microelectronic systems business that complement Cobham’s lineup, including passive and active microwave components and integrated microwave assemblies.
The U.K. company is being advised by Bank of America Corp. and Citigroup Inc., with Bank of America and UBS AG as joint bookrunners in the placing.