Story ID: 479
Safran Shareholders Pave Way To Zodiac Acquisition
By: Guillaume Lecompte-Boinet
Caption: Safran has its work cut out to turn Zodiac around but new CEO has been charged with the task, as acquisition is approved.
Word Count: 401
During a general assembly held June 16 in Paris, 90.5 percent of Safran shareholders approved the acquisition of French aerospace supplier Zodiac Aerospace (Chalet 214). The approval came despite opposition from UK-based investment fund The Children’s Investment (TCI), which holds 5 percent of Safran shares. The initiative was first announced January 19 but encountered difficulties after several profit warnings issued by Zodiac. Other issues included a complicated purchase process and a price many considered too high at €29.50 ($33) per share for a total of €9.7 billion ($10.86 billion). The new offer is simpler and values Zodiac at 15 percent less—€25 ($28) per share, or €8.2 billion ($9.2 billion).

The acquisition is scheduled to be completed by the end of 2017, pending regulatory approval. Oliver Zarrouati, CEO of Zodiac and blamed by some for its industrial difficuties, will be replaced by Yann Delabrière, former CEO of the French automotive supplier Faurecia. Zodiac has issued 11 profit warnings in the past three years, the last one on April 28. At that time, it acknowledged a €24 million ($26.9 million) loss for the first half of 2017.

With revenues of €5.2 billion ($5.8 billion) in 2016, Zodiac will add several new dimensions to Safran's portofolio, including cabin interiors (61 percent of total operations) and aerosafety systems (39 percent). More than 21,800 commercial aircraft in service are equipped with a Zodiac systems, and over 90 percent of its revenues are generated as a Tier 1 supplier. The new Safran group will now have global leadership positions across the entire aircraft value chain, with revenues of around €21 billion ($23.5 billion) and a staff of 100,000.

Propulsion is traditionally the main activity of Safran, accounting for around 59 percent of its 2016 revenues. When the Zodiac purchase is completed, the group will have around €10 billion ($11.2 billion) in equipment, roughly half of the activity, versus 33 percent in 2016. This will also reinforce aftermarket activities at Safran, with Zodiac having generated 36 percent of its revenues in support and services. Safran is already a leader in MRO services, with €7 billion ($7.8 billion) in revenue in 2016.

Significant improvements will be necessary at Zodiac; Many of Zodiac’s factories are too small, or poorly organized. Zodiac experienced serious problems with cost overuns on programs such as the Airbus A350—notably the seats. A rationalization program is on track, but one Airbus official recently told AIN that even if the production rate has stabilized, "quality is an issue." Delabrière has a reputation as a tough manager, having successfully turned around Faurecia's finances.