Woodward and Hexcel's $6.4 Billion Merger

By Ilya Korzinkin, Mihir Gupta, Hugo Tay, Siddharth Sharma (University College London) | 4/03/20


Overview of the deal

Acquirer: Woodward Inc.

Target: Hexcel Corporation

Estimated value: $6.4bn

Announcement date: January 12, 2020

Acquirer Advisors: JP Morgan Chase LLC

Target Advisors: Goldman Sachs & Co.

Woodward (WWD) will combine its operations with Hexcel (HXL) in an all-stock transaction that gives it a controlling stake in the merged entity, creating one of the world's biggest aerospace and defense suppliers.

The transaction, which the suppliers to Boeing (BA) and Airbus (EADSY) assure is a merger of equals, will create a company under the Woodward-Hexcel name with annual revenue of more than $5 billion. While suppliers are hurting because of Boeing's issues after the 737 Max disasters, executives assure that they are driven by the pursuit for more-efficient engines over the next 20 years, and by no means by Boeing’s recent troubles. Hexcel shareholders will get 0.625 of Woodward stock for every share held, which values Hexcel at $6.4 billion or about $76.23 a share, based on Woodward's closing price the date of the announcement, a 4.5% premium from Hexcel's last traded price. Woodward investors will continue to own the same number of shares, or about 55% of the combined company. The new entity will be headquartered in Fort Collins, Colorado, where Woodward is based, while Hexcel is located in Stamford, Connecticut. Woodward's Chairman and CEO Tom Gendron will take the role of executive chairman for one year from the close of the deal, then switch to non-executive chairman for another year before handing the reins to Stanage. The board of 10 will include five directors from each company.

The deal extends a years-long rush to consolidation within the defense industry. It's the sector's ninth merger of at least $1 billion announced over the past year, according to data compiled by Bloomberg. Woodward itself has previously been the subject of deal speculation, and in 2018 the company denied a Wall Street Journal report that it was in talks with Boeing.

Woodward Inc.:

Woodward, Inc. is the world's oldest and largest independent designer, manufacturer, and service provider of control systems and control system components (e.g. fuel pumps, engine controls, actuators, air valves, fuel nozzles, and electronics) for aircraft engines, industrial engines and turbines, power generation and mobile industrial equipment. Woodward parts were notably used in the GE engine on United States military's first turbine-powered aircraft. Starting in the 1950s, Woodward began designing electronic controls, first analog and then digital units.

Founded in: 1870

CEO: Thomas A. Gendron

Number of Employees: 9000

Market Capitalization: $ 6 830 M EV: $7 587 M

Revenue: $2 900 M EBITDA: $119 M

EV/Revenue: 2.62x EV/EBITDA: 63.75x

Hexcel Corporation:

Hexcel Corporation is an American public industrial materials company, based in Stamford, Connecticut. The company develops and manufactures structural materials including carbon fiber. The company sells its products in commercial, military and recreational markets for use in commercial and military aircraft, space launch vehicles and satellites, wind turbine blades, sports equipment and automotive products. Hexcel works with Airbus Group, The Boeing Company, and others. Since 1980, the firm has publicly traded on the New York Stock Exchange under the ticker symbol HXL.

Founded in: 1948

CEO: Nick L. Stanage

Number of Employees: 6260

Market Cap: $ 5, 760 Million EV:  $6 561 M

LTM Revenue: $2 370 Mil LTM EBITDA:  $132 M