Rockwell Collins CEO says no major buys for several years

Rockwell Collins CEO Kelly Ortberg said its impending purchase of ARINC Inc. for $1.39 billion will prompt the company to pause before looking at a similar purchase.

In comments to the Wall Street Journal, Ortberg said the company will still consider some smaller "bolt-on" deals.

"Because of the debt we're taking on here, we'll probably not be looking to any large substantial acquisitions for the next couple of years or so," Ortberg said.

The Cedar Rapids-based avionics and communications supplier will finance the purchase of ARINC from the private equity Carlyle Group with one-third commercial paper and two-thirds long-term bank debt at historically low interest rates. The company said it expects to pay down the commercial paper over the next few years.

Moody's Investors Service reacted to Rockwell Collins's announcement by placing the company's investment- grade ratings on review for a potential downgrade.

The credit rating agency said that while the pending acquisition appears to fit well with Rockwell Collins's hardware and avionics platform and business jet flight information systems, the all-debt financing imposes another layer of incremental financial risk.

Moody's also cited the company's substantial underfunded pension obligations and "a decided shift in fiscal policies over the past couple of years," including a bias toward shareholder-friendly moves such as dividends and stock buybacks.

In a report issued Tuesday, Birmingham, Ala.-based Sterne Agee analysts Peter Arment and Josh Sullivan noted that the deal, while expensive, will go a long way toward boosting Rockwell Collins's aerospace business in the years to come. Arment and Sullivan raised Rockwell Collins to a "buy" recommendation from "neutral."

Rockwell Collins finished the third quarter of its fiscal year with $354 million in cash and equivalents. The company has $1.16 billion in short and long-term debt.

The acquisition of ARINC, a major company in communication and information processing solutions for the commercial aviation industry, will contribute about $600 million in annual revenue. It also will shift Rockwell Collins's

business mix to 54 percent commercial sales and 46 percent government sales.