Recaro eyes assets as B/E Aerospace explores sale

FRANKFURT/PARIS Mon May 5, 2014 7:42am EDT

FRANKFURT/PARIS (Reuters) - German aircraft seating maker Recaro said it was studying the possibility of buying assets from B/E Aerospace (BEAV.O) after the U.S. company announced a surprise review that could lead to a shake-up of the $3 billion cabins industry.

Florida-based B/E Aerospace on Sunday postponed a May 5 investor meeting and said it had appointed advisers to explore strategic alternatives including a possible sale, merger or spin-off of the company or selected businesses.

The statement came less than two weeks after the company reported a record quarter for new orders amid rising demand for wide-bodied jets, and said it was looking at two potential aerospace-related acquisitions and had completed a third.

Asked whether Recaro Aircraft Seating was interested in buying any parts of B/E Aerospace, the German firm's chief executive, Mark Hiller, said: "We are looking into it".

In Paris, B/E's closest rival in the seats market, Zodiac Aerospace (ZODC.PA), declined to comment. Its shares were down 1.2 percent, slightly lagging a weaker overall market .SBF120.

"Zodiac cannot be considered a potential bidder on the deal in our view," said Kepler Cheuvreux analyst Christophe Menard.

Given B/E Aerospace's $9 billion market value, "an acquisition in full of the company could only be carried out by a much larger player in aerospace," he said in a note, adding that Zodiac's firepower was 0.5-1 billion euros ($0.7-1.4 billion).

A bid from within the industry for the seats business would have to overcome competition hurdles, he said, with Zodiac and B/E controlling 70 percent of the market between them.

Recaro said that including its own market share, the three firms combined accounted for 85 percent of sales. The rest of the cabin interiors market remains fairly fragmented.

On Monday, the unlisted German firm reported sales of 337 million euros for 2013 and said it was aiming to reach 600 million in 2018, not including the effects of any acquisitions.

LEADING ROLE

B/E Aerospace was founded in 1987 and grew through more than two dozen acquisitions to claim a leading role in the market for aircraft cabin products.

In 2008, it bought the consumables solutions distribution business of Honeywell (HON.N) for $1 billion to create what it describes as the world's largest distributor of fasteners, operating in a market estimated at $4.5 billion a year.

The company made just over half its 2013 revenue of $3.48 billion from commercial aircraft, with about a third coming from consumables management - the slowest-growing part of its business - and the rest from luxury fittings for business jets.

B/E Aerospace shares have risen 40 percent in the past year, outperforming the S&P 500 Index .SPX, up 17.8 pct. On Friday, the stock closed at $88.96, up 0.7 percent. Several brokers raised their price targets for the stock on Monday.

B/E Aerospace shares trade at 19.1 times this year's anticipated earnings, compared with an average multiple of 16.3 for its industry peers, according to Thomson Reuters data.

The company, which has net debt of $1.6 billion, has an enterprise value of 11.6 times its anticipated earnings before interest, tax, depreciation and amortization, giving it a premium over the sector average of 10.2, according to the data.

B/E Aerospace said it had hired Citigroup Inc (C.N) to advise it on the strategy review. It said it had no timetable for a decision and could not guarantee it would lead to a sale.

(Additional reporting by Victoria Bryan in Frankfurt and Cyril Altmeyer in Paris; Editing by Caroline Copley and James Regan)