Spirit, GKN officials mum on British newspaper’s report of takeover deal

07/25/2013 6:39 PM

08/08/2014 10:18 AM

Spirit AeroSystems and GKN Aerospace officials declined to comment on reports from the Daily Mail, a British newspaper, that GKN, an aerospace components group, may be on the verge of submitting a bid for Spirit.

The paper reported Thursday that Bank of America/Merrill Lynch was reportedly advising GKN on a deal valued at about $5 billion, which would be a “cash and shares bid, worth around $35 a share.”

“Speculation intensified on Wednesday with dealers hearing it is on the verge of launching ... the bid,” the newspaper said.

Officials at both companies sidestepped talk of a takeover.

“We don’t speculate on rumors of any kind and have nothing to announce regarding this question,” Spirit AeroSystems spokesman Ken Evans said.

But the topic will likely be a topic of discussion with analysts on Spirit’s upcoming second-quarter earnings call.

Evans said he imagines analysts will have questions sparked by the report.

The combination of the two companies “would offer potential for synergies and the benefit of industry consolidation,” RBC analyst Robert Stallard said in a note to investors.

Spirit, based in Wichita, would bolster GKN’s connections to Boeing and its percentage of work it has in the aerospace sector, Stallard wrote.

The deal would have significant risk, he said, because of the hefty $590 million charge Spirit took in October 2012 on several “underpriced contracts.”

The company took the charge on several of its development programs. The size of the charge took analysts by surprise at the time.

Spirit has been undergoing a comprehensive strategic and financial review of its development programs, a review launched by its new CEO Larry Lawson.

Spirit sales are estimated to total nearly $6 billion this year.

GKN has been in an acquisition mode, and GKN officials have said the company wanted to grow its aerospace business.

An aquisition would make GKN the largest aerostructures company in the world by a large margin, said Teal Group analyst Richard Aboulafia.

It’s also possible that Spirit could sell off portions of the company.

Spirit is essentially two companies, Aboulafia said. It has legacy Boeing work, which is doing well. And it has new development projects brought in after the company formed, which has brought with it losses and risks.

Antitrust issues could also limit a deal, one analyst wrote in a report; he said it would come as no surprise should Spirit decide to divest itself of underperforming, non-core businesses.

“At this point, however; we would not take a sale of the entire company off the table, especially if it has the support of Boeing, Spirit’s largest customer,” wrote BofA Merrill Lynch analyst Ronald Epstein.

Spirit would fit well with GKN, Aboulafia said.

“It’s just a question of can they do it (financially),” he said.

UBS, GKN’s joint house broker, told the Financial Times that GKN Aerospace is focused on the integration of Volvo Aero, which it bought last year. And that reduces the potential for large merger and acquisition activity in the short term.

The report from the Daily Mail comes as Spirit cut 360 jobs in Wichita and Tulsa as a cost-cutting measure.

Spirit stock climbed after news spread about a possible GKN deal, and GKN stocks declined on the news.

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