Friday, 14 May, 2021

What if Safran finally bought Zodiac?


Zodiac Aerospace, weighed down by the difficulties of its seats division, now seems willing to consider a takeover. Enough to rekindle the interest of Safran, which was rudely rejected in 2010?

An A380 nacelle

It was in July 2010. Zodiac Aerospace, approached by the boss of Safran Jean-Paul Herteman with a view to a possible merger, cracked a Sunday statement as clear as it was martial: “There is no [a] no need to follow up on this proposal. ”The boss of Zodiac, Olivier Zarrouati, and the chairman of the supervisory board, Didier Domange, put a layer back a few days later in a column titled“ No, c’est non ”, describing “two companies with very different cultures and incompatible international alliances”. Before Olivier Zarrouati delivered the final blow in Les Echos: “Safran has not demonstrated in the past its ability to integrate companies from different cultures”.

Cinq profit warning pour Zodiac

A little less than six years later, water has flowed under the bridges. The incredible success story of Zodiac Aerospace, which has doubled in size since 2010 through a mixture of targeted acquisitions and internal growth, came to an abrupt halt with the crisis in its aircraft seating business. Delays in the delivery of its seats have forced the group to announce five consecutive profit warnings, and provoked the ire of Airbus and Boeing, the former even excluding Zodiac from its new A330neo. Zodiac is also struggling to deliver the A350 toilets on time, to the chagrin of Airbus, which is targeting more than 50 deliveries of the aircraft this year. Result: the group’s market capitalization has halved since March 2015, to 4.9 billion euros.

Have all these difficulties wearied the shareholder families, who lock the group’s capital? The general tone of Zodiac’s communication seems, in any case, to have changed significantly in recent weeks. Asked by a financial analyst on March 15 on the reception he would give to a takeover offer, Olivier Zarrouatti did not rule out any scenario: “We would be receptive to what we would consider to be in the interests of shareholders and of the company. ” Admittedly, the boss of the group engaged in an immediate back-pedaling: iAsked about BFM Business on a possible takeover, he replied curtly: “In one word and in three letters, no”.

Saffron in great shape

But the aeronautics areopagus is beginning to believe again in an offer from Safran, Oddo even evoking a probability “clearly higher today ”. Herfran, in fact, appears to be the ideal suitor. The group is in flourishing health: it ended the 2015 financial year with a turnover of 17.4 billion euros, organic growth of almost 4%. It generated nearly a billion euros in cash in 2015 alone, and halved its debt over the period, to less than 750 million euros. The group led by Philippe Petitcolin therefore has the means to achieve its ambitions, especially since part of its Morpho security division has been put up for sale (Morpho Detection, explosives detection activity), and the rest of the activity (1.9 billion euros in turnover in all) could meet the same fate by the end of the year.

Philippe Petitcolin also assured on March 14, during the group’s investor day, that acquisitions in aeronautical equipment were possible, stressing that Safran was looking at “all the external opportunities which have a DNA quite close” to his. In Les Echos, he confirmed that “if opportunities arose, corresponding to our DNA – namely high-tech products directly linked to aircraft manufacturers and companies, with a strong after-sales component – we would look” .

Complementary groups

Zodiac Aerospace fits this robot portrait well: the group works for both aircraft manufacturers and airlines, and after-sales represents around 35% of its turnover. A merger could create synergies in power generation activities. Above all, it would establish Safran as an even more essential partner for aircraft manufacturers such as Airbus and Boeing. The group is already present in engines, their nacelles, landing gear, brakes, cabling. With Zodiac, it would enter the aircraft cabin level (“galleys”, lighting, seats, trolleys, toilets) and critical systems (oxygen systems, masks, pumps, etc.).

Safran would not be the first equipment supplier to have ideas for external growth. US giants Honeywell and UTC have discussed merger in recent weeks, before giving up. An alliance would have created a juggernaut with $ 95 billion in sales. Between them, Safran and Zodiac would reach 22 billion euros. Asked by Challenges about a possible interest in Zodiac last February, a senior executive from Safran kicked in touch: “To my knowledge, families are not sellers”, he assured.

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