(Reuters) - Hexcel Corp (HXL.N), a composites technology company, and aircraft and industrial parts maker Woodward Inc (WWD.O) said on Sunday they would combine in an all-stock merger of equals to create an integrated systems provider for the aerospace and industrial sectors.
The deal between the two U.S.-based companies is valued at about $6.43 billion based on Woodford’s Friday close of $121.96, and values Hexcel at $76.23 per share, a premium of 4.5% from Hexcel’s last close, according to Reuters calculations.
The companies said existing Woodward shareholders would own about 55% and existing Hexcel shareholders would own some 45% of the combined company on a fully diluted basis after the completion of the merger.
The combined company, which would form one of the world’s biggest aerospace and defense suppliers, will be named Woodward Hexcel and is expected to generate net revenues of about $5.3 billion and EBITDA of $1.1 billion for each company’s fiscal-year 2019.
The deal comes as aircraft suppliers struggle with the after-effects of the grounding and halted production of Boeing Co’s (BA.N) 737 MAX.
Boeing is Hexcel’s second-biggest customer, accounting for 25% of its annual sales and makes composite materials used on the MAX airframe and engines.
Woodward gets about 15% of its annual sales from Boeing, its biggest customer. It makes parts including a thrust reverser actuation system for the MAX. The company said last year the MAX grounding weighed on its sales growth.
Boeing has continued to purchase parts from some suppliers at a production rate higher than its own, in order to keep the supply chain fluid and avoid major disruptions when the MAX returns to service.
Hexcel President and Chief Executive Officer Nick Stanage will head the combined company, and Woodward CEO Tom Gendron intends to retire on the anniversary of the closing of the merger, the companies said.
Annual cost synergies of more than $125 million by the second full fiscal year are expected and combined free cash flow is forecast to be about $1 billion annually.
The combined company, to be headquartered in Fort Collins, Colorado, also plans on repurchasing shares, including executing an expected $1.5 billion share repurchase program within 18 months of closing.
The board of directors will have 10 members, with five directors from each company including Gendron and Stanage.
Reporting by Mekhla Raina in Bengaluru; Editing by David Gregorio and Peter Cooney