Press Release

Issued by Collins Aerospace - Avionics.

October 23, 2016

Rockwell Collins, a global leader in high-integrity solutions for aerospace and defense, and B/E Aerospace, the world's leading manufacturer of aircraft cabin interior products, today announced that they have entered into a definitive agreement under which Rockwell Collins will acquire B/E Aerospace for approximately $6.4 billion in cash and stock, plus the assumption of $1.9 billion in net debt. 

Under the terms of the agreement, each B/E Aerospace shareowner will receive total consideration of $62.00 per share, comprised of $34.10 per share in cash and $27.90 in shares of Rockwell Collins common stock, subject to a 7.5% collar. This represents a premium of 22.5% to the closing price of B/E Aerospace common stock on Friday, October 21, 2016.

The transaction combines Rockwell Collins' capabilities in flight deck avionics, cabin electronics, mission communications, simulation and training, and information management systems with B/E Aerospace's range of cabin interior products, which include seating, food and beverage preparation and storage equipment, lighting and oxygen systems, and modular galley and lavatory systems for commercial airliners and business jets.

The acquisition significantly increases Rockwell Collins' scale and diversifies its product portfolio, customer mix and geographic presence. On a pro forma basis, Rockwell Collins would have nearly 30,000 employees, $8.1 billion in revenues and $1.9 billion in EBITDA for the twelve months ending September 30, 2016.

“This transformational acquisition is consistent with our strategy to accelerate growth and build value through market-leading positions in cockpit and cabin solutions,” said Kelly Ortberg, chairman, president and chief executive officer of Rockwell Collins. “We see tremendous opportunity to better serve our commercial aviation, business jet and military customers through broader offerings.”

Ortberg continued, “B/E Aerospace has a leading position in nearly all the segments it serves and a highly visible, long-cycle backlog. Beyond new aircraft deliveries, its $12 billion installed base provides a strong flow of aftermarket retrofit opportunities that balances our current cyclical exposure to OEM production rates. Additionally, our combined portfolio uniquely positions us to integrate cabin products, smart network technologies and connectivity solutions to significantly enhance aircraft uptime and airline profitability while improving the experience of passengers and airline personnel.”

Ortberg added, “We expect to generate significant run-rate cost synergies and over $6 billion in free cash flow over the next five years with expected free cash flow conversion of greater than 100 percent. In addition, by leveraging our respective airline and OEM relationships, as well as Rockwell Collins' business jet dealer network and military aircraft positions, we firmly believe there are revenue synergies that create meaningful upside to our business case.”

B/E Aerospace founder and chairman, Amin Khoury, stated, “Our combination with Rockwell Collins represents an excellent outcome for B/E Aerospace's stockholders, who will receive an immediate premium as well as a substantial equity interest in a strong combined company with a broader range of products, customers, and the combined expertise and resources to create future value. We feel confident that this combination delivers significant long-term benefits neither company could realize on its own. We look forward to becoming part of Rockwell Collins and leveraging their technology to accelerate our long-term growth as we embark on the next chapter in the company's history.”

Ortberg concluded, “I'm excited to welcome B/E Aerospace's talented employees and bring together two industry leaders with complementary capabilities and strong reputations for innovation, quality and delivering sustained customer value.”

The transaction is expected to generate run-rate pre-tax cost synergies of approximately $160 million ($125 million after tax). In addition, Rockwell Collins expects to make certain conforming purchase accounting adjustments resulting in improved pre-tax earnings of approximately $60 to $90 million per year for the first six years after the acquisition. The transaction is expected to be double-digit accretive to earnings per share in the first full fiscal year.

Under the terms of the agreement, B/E Aerospace shareholders will receive $34.10 per share in cash and a number of Rockwell Collins shares of common stock equal to $27.90, with such number of shares of Rockwell Collins common stock determined based on the volume weighted average closing price of Rockwell Collins common stock for the 20 trading days ending on the day prior to closing (provided that this volume weighted average price is no less than $77.41 and no greater than $89.97 per share). If the volume weighted average price of Rockwell Collins common stock during this period is above $89.97, the stock portion of the consideration will be fixed at 0.3101 shares of Rockwell Collins common stock for each share of B/E Aerospace, and if it is below $77.41 per share, the stock portion of the consideration will be fixed at 0.3604 shares of Rockwell Collins common stock for each share of B/E Aerospace.

Upon completion of the transaction, which is expected in the spring of 2017, current B/E Aerospace shareowners will own approximately 20 percent of the combined company.

Rockwell Collins expects to finance the cash portion of the transaction with debt financing, a significant portion of which has been committed. Upon completion of the transaction, Rockwell Collins is expected to maintain a strong investment grade credit rating with net debt of approximately $7.5 billion, and plans to maintain its current dividend policy. Rockwell Collins intends to pay down $1.5 billion of the new debt by the end of its fiscal 2019 while curtailing its share repurchase program to a level sufficient to offset dilution.

The transaction, which was unanimously approved by the boards of directors of both companies, is subject to the approval of Rockwell Collins and B/E Aerospace shareowners, regulatory approvals and other customary conditions.

Upon close of the transaction, Rockwell Collins will increase the size of its board to 11 members with the addition of two B/E Aerospace board members. Werner Lieberherr, CEO of B/E Aerospace, will become executive vice president and chief operating officer of a newly created aircraft interior systems segment for Rockwell Collins.

J.P. Morgan Securities LLC served as financial advisor to Rockwell Collins and Skadden, Arps, Slate, Meagher & Flom served as legal counsel. Citigroup and Goldman, Sachs & Co. served as financial advisors to B/E Aerospace and Shearman and Sterling LLP served as legal counsel.

Rockwell Collins and B/E Aerospace executives will discuss the transaction in Rockwell Collins' earnings webcast on Monday, October 24th at 8:30 a.m. ET. A link to the webcast and an investor presentation can be found on the Investor Relations sections of the Rockwell Collins and B/E Aerospace websites at http://investor.rockwellcollins.com/investor-relations/corporate-profile/default.aspx and http://investor.beaerospace.com/phoenix.zhtml?c≠78014&p≠irol-IRHome. 

Separately today, Rockwell Collins issued its fourth quarter 2016 financial results and B/E Aerospace issued its third quarter 2016 financial results. Due to the pending Rockwell Collins and B/E Aerospace transaction, both Rockwell Collins and B/E Aerospace have canceled their previously scheduled earnings conference calls and webcasts.

For more information about the transaction, visit http://rockwellcollins.acquisitionannouncement.com.