TransDigm inks $4-billion deal to acquire Esterline Technologies

Aerospace component supplier TransDigm Group (TDG) has agreed to acquire its rival Esterline Technologies (ESL) in a deal worth $4 billion, including debt. As per the deal, TransDigm will buy all of the outstanding shares of Esterline’s common stock for $122.50 per share in an all-cash transaction. This represents a premium of 38% to Esterline’s Tuesday closing price.

Shares of the acquirer lost 2%, while the shares of the acquired company gained 30% during the midday trading. Esterline also hit a new 52-week high today.

The transaction, which has been approved by boards of both companies, is funded with a combination of cash and debt. Subject to regulatory approvals, the deal is targeted to close before the second half of calendar 2019. TransDigm anticipates this acquisition to add modestly to its adjusted EPS within the first year of ownership.

The Bellevue, Washington-based company designs and manufactures products for the aerospace, defense and adjacent technology markets. Esterline has three segments; Avionics & Controls, Sensors & Systems, and Advanced Materials. The company employs around 12,500 employees and its main customers include Boeing (BA) and Airbus.

TransDigm will buy all of the outstanding shares of Esterline’s common stock for $122.50 per share

For the recently ended third quarter, Esterline posted adjusted EPS of $1.10 on sales of $500 million. The company’s 2018 EPS is pegged to be $3.65 to $3.85 and revenue is expected to be in the range of $2.00-2.05 billion.

TransDigm reported adjusted EPS of $4.01 and net sales of $981 million for its third quarter. The Cleveland-based company trimmed down its fiscal 2018 adjusted earnings outlook to $17.45-17.77 per share, hurt by the additional interest expense from its recent financing activities. In July 2018, TransDigm completed the acquisition of Skandia Inc for approximately $84 million, including the debt.

When the acquisition is completed, Bob Henderson, TransDigm’s current vice-chairman, will oversee the integration and operations of Esterline.

Year-to-date, Esterline shares have gained 19% and TransDigm stock has swelled 28%.