Activist investor Relational reports stake in B/E Aerospace

NEW YORK Thu May 15, 2014 4:19pm EDT

NEW YORK (Reuters) - Activist investment firm Relational Investors LLC reported a 3.5 percent stake in B/E Aerospace Inc (BEAV.O) on Thursday and said it will monitor the company's ongoing process to evaluate strategic alternatives to maximize shareholder value.

The Florida-based aircraft seat maker and parts distributor made a surprise announcement on May 4 that it had hired Citigroup Inc (C.N) to explore options, including a possible sale, merger or spinoff of the company or selected businesses.

The announcement was widely seen as signaling it had already received an approach or was in detailed talks with a potential buyer, but people familiar with the matter told Reuters that B/E was not in advanced talks with any party.

Relational, founded by investor Ralph Whitworth, started buying shares in the $10.3 billion company in February and met with its management in April to discuss strategic options, according to people familiar with the investment firm's thinking.

Relational believes that B/E's core, high-return aerospace interiors segment has been weighed down by its diversification into a low-margin consumables business in recent years, the people said.

B/E made just over half its 2013 revenue of $3.48 billion from commercial aircraft, with about a third coming from consumables management, as the spare parts business is known. Consumables management is the slowest-growing part of the company. The rest of B/E Aerospace's revenue comes from luxury fittings for business jets.

In 2008, B/E Aerospace bought the consumables distribution business of Honeywell International Inc (HON.N) for $1 billion to create what it describes as the world's largest distributor of fasteners or specialist bolts, operating in a market estimated at $4.5 billion a year.

While Relational's suggestions likely served as a catalyst for the company to launch a sale process formally, B/E Aerospace itself had been considering strategic options before the investor showed up, the people said.

B/E could not be immediately reached for comment.

"B/E Aerospace has great core assets and a strong competitive position," said Matthew Hepler, managing director of research at Relational Investors, said in a statement.

"We welcome the company's announcement to explore strategic alternatives and will encourage the board to evaluate and pursue opportunities, in a disciplined manner, that will maximize value for all shareholders."

B/E Aerospace makes lavatories for the Boeing 737 and galleys for the Airbus (AIR.PA) A350, as well as seats and oxygen units. It also has a spare parts distribution business.

Most analysts said a sale was most likely to work if B/E Aerospace split the interiors business from distribution.

That would result in a breakup of the 26-year-old company, which has grown through more than two dozen acquisitions to become one of the largest makers of aircraft seats.

(Editing by Nick Zieminski)