France’s Safran has crafted a deal to persuade family investors in Zodiac Aerospace to give up control in a merger that would create the world’s third largest aerospace supplier.
But in a rare two-stage deal Safran must first convince ordinary investors, who hold 68 per cent of the company, to sell their shares in the company for cash. If more than half of those investors accept, the deal will proceed to the second phase.
This would offer the handful of families with historic ties a chance to keep shareholdings and industrial links while maintaining longstanding tax breaks — key to getting the families on board. The families lead a group that hold 32 per cent of Zodiac voting rights and spurned Safran’s first approach six years ago.
The dual deal structure reflects how Safran is caught between the need to make the deal attractive to markets and keep long-term investors on board.
Safran, which is 14 per cent owned by the French state, wants to create a new aerospace champion and the tax umbrella reflects the policy of successive governments to smooth the path for such deals.
Without that structure, the Safran deal with Zodiac would collapse, legal experts and people involved in the deal said.
“It has to be done this way or there is no deal,” a person directly involved in the negotiations said.
But the unusual split structure has puzzled some ordinary Zodiac investors, who could collectively block the deal, according to people briefed on the discussions.
Under the deal, Safran is first offering cash worth $9 billion or $29.47 a share for Zodiac, aimed at most investors.
It does not allow shareholders outside the core group to exchange their own Zodiac shares for stock in the new Safran.
“Some shareholders are saying ‘Why should we have to take cash? If the story is so good, why shouldn’t we be able to take up shares? Why exclude us from the club?” said a European analyst, asking not to be named because of company policy.
The analyst said he had been told this by his clients who are investors in Zodiac.
Safran’s backers say that is offset by a hefty 26 per cent premium compared to Zodiac shares prices before the offer.
Changing part two of the deal to a classic share offer would expose descendants of Zodiac’s founders to French wealth taxes and other penalties that one analyst estimated could reach hundreds of millions of euros.
“The problem...is the wealth tax. If you don’t find a way to make the deal interesting for the families, it can’t happen...That is why a merger was chosen rather than a simple share swap,” said a person close to the group of families.
While France’s tax system pounces on gains from selling shares for either cash or stock, shareholders tied together by a special pact don’t face the same exposure when companies merge. That is not the reason bringing the two firms together, but is one factor Safran hopes will prevent the deal falling apart.— Reuters
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