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Rockwell Collins, the subject of takeover talk, insists current position is strong

Hedge fund has history of pressuring management

Rockwell Collins headquarters in Cedar Rapids on Thursday, Dec. 1, 2016. (Liz Martin/The Gazette)
Rockwell Collins headquarters in Cedar Rapids on Thursday, Dec. 1, 2016. (Liz Martin/The Gazette)

Cedar Rapids’s largest employer has become the subject of unexpected takeover talk as it prepares to close on the largest acquisition in its publicly traded history.

According to a widely reported Bloomberg News story on Wednesday, Rockwell Collins — which employs about 8,000 in Cedar Rapids and 20,000 worldwide — is being pressured by Starboard Value, a New York investment fund, to call off the $6.4 billion purchase of B/E Aerospace and explore other options, including selling itself.

Rockwell Collins Chairman and Chief Executive Officer Kelly Ortberg, speaking Thursday at the Credit Suisse Fourth-Annual Industrial Conference in Palm Beach, Fla., declined to say much about the Starboard Value proposal.

“I won’t comment on the Bloomberg speculation,” Ortberg said in response to a moderator’s question. “We remain confident that B/E Aerospace acquisition will create significant value for our shareholders.

“We are filing or have filed all the regulatory activities. We have all of our synergy and integration teams underway, and we expect to receive shareholder approval and close the deal in the spring.”

On Oct. 23, Rockwell Collins announced plans to acquire B/E Aerospace, a Wellington, Fla., aircraft interior manufacturer. The merger would create a company with about 30,000 employees that would sell to aircraft manufacturers, airlines and the military sector.

Starboard Value, which invests in what it terms “deeply undervalued companies,” recently bought an unknown number of Rockwell Collins shares, Bloomberg News said.

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The hedge fund does not have to notify the U.S. Securities and Exchange Commission unless it acquires five percent of Rockwell Collins stock. And it would have 10 days from the date it buys more than five percent to file with the SEC.

Jeff Smith, managing member of Starboard Value, has indicated he will vote against the B/E Aerospace purchase, according to Bloomberg News. The news service also said three of Rockwell Collins’s 25 largest shareholders will oppose the deal and favor selling the avionics and communications equipment supplier.

Under the merger agreement, Rockwell Collins would have to pay a $300 million breakup fee to B/E Aerospace if it calls off the transaction.

A proxy statement sent to both groups of shareholders includes a provision allowing the Rockwell Collins board of directors to consider a takeover proposal from a third party “that provided superior value to Rockwell Collins and its stockholders.”

The board, under circumstances described in the merger agreement, could change its recommendation that Rockwell Collins stockholders vote in favor of issuing stock to pay for B/E Aerospace and/or vote to terminate the merger agreement.

Andrew Glasheen, an analyst with First Capital Alliance of Chicago, said Rockwell Collins’s board would need to have a superior takeover offer to back out of the deal.

“If they don’t have a deal in hand, then it is pure speculation,” Glasheen said. “At some point, you invest in a company because you have faith in the board of directors and management to make the right decisions.

“Rockwell Collins stock is trading close to an all-time high right now,” he said. “From bottoming out at about $48 in 2012, management has done a reasonably good job at a stock price that’s at or near its five-year high of $99.”

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Starboard Value, which has declined to comment, has a history of pressuring company management. The hedge fund owned a large amount of Staples and Office Depot stock before it urged the companies to pursue a merger. In March 2016, Starboard Value sold its shares of Office Depot after the Federal Trade Commission blocked the transaction for anti-competitive reasons.

The investment fund also was majority owner of Office Depot when it merged with OfficeMax in 2013.

l Comments: (319) 398-8366; george.ford@thegazette.com

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