Released under the GIC Framework
PARIS—French jet engine to mobile phone conglomerate Safran SA said Monday it is expanding its presence in the U.S. with plans to buy L-1 Identity Solutions for $1.09 billion in cash.
The deal, which has been approved by the boards of both companies, will result in significant operating synergies, Safran said. Operating cost synergies will be around $30 million in the first year-and-a-half after the closing of the transaction, mostly related to the biometrics activities.
As part of the agreement, L-1 will sell its government consulting services business for $295 million to BAE Systems, the defense, security and aerospace systems group.
Safran will finance the acquisition with existing cash reserves and plans to integrate L-1 activities into its existing security business in the U.S.
The $12 a share price represents a 31.2% premium over L-1's 30-day average closing price of $9.14 for the period ending on Sep.17.
The deal should be accretive from the first year, the group's Chief financial officer Ross McInnes said during a conference call. He added that the company was acquiring "resilience, backlog," while the group's Chief Executive Jean-Paul Hartemann said the acquisition will offer a perfect geographical match for Safran.
L-1 Identity Solutions had 2009 revenue of $436 million and recorded a backlog of $1.1 billion at end of 2009. The company designs systems that recognize finger prints and eye iris patterns for identifying individuals.
L-1's estimated enterprise value is $1.19 billion, taking into account L-1's estimated net debt at closing of approximately $100 million, including the cash proceeds from the prior sale of the government consulting services business.
The transaction would create an industry-leading provider of solutions for the fast-growing high-tech homeland security market, the company said.
The planned purchase of L-1 doesn't affect Safran's potential interest in seeking a deal with Zodiac Aerospace, Mr. Hartemann said.
Late August, Safran reaffirmed its position, made public in July, that it "remains convinced of the industrial and strategic logic of bringing together the activities of both groups."
Safran approached Zodiac's board in July with the idea of discussing possible avenues for a merger. That approach was rebuffed by Zodiac.
Airbus and other makers of large aircraft have expressed their preference for working with several large supplier groups rather than a multitude of smaller ones. France's Defense Minister Herve Morin has said the French defense industry needs to be rationalized in order to remain globally competitive. Safran has referred to the eventual consolidation of the larger players among aerospace equipment firms as inevitable.
Safran makes jet engines and nacelles, undercarriage, braking and landing systems, avionics and wiring for the aerospace industry.
Zodiac is a major supplier of escape chutes, fuel systems, electrical power management, cockpit controls and displays, and hydraulic and lighting systems.