PARIS France's Safran (SAF.PA) is exploring plans to lower its $9 billion bid for Zodiac Aerospace (ZODC.PA) and may simplify its structure amid continued turmoil at the seats maker and pressure from its own shareholders, a financial source said.
A new structure could involve a mixture of cash and shares in a more traditional offer for Zodiac, rather than a complex two-tier structure designed to woo family shareholders.
But an increasingly wary Safran is unwilling to take any decisions on a range of options before Zodiac issues its newly delayed first-half results, the source said, asking not to be identified because of the sensitivity of the matter.
Safran, which makes aircraft engines and other aerospace equipment, declined to comment.
Zodiac said earlier it was postponing publication of its first-half financial results by a week to April 28 due to what it described as excess work amid Safran merger talks.
The delay coincides with analyst concerns that Zodiac's rapid growth through numerous acquisitions has complicated its reporting processes, which in turn make it harder to resolve a two-year industrial crisis in its seats and cabins plants.
Safran faces criticism over the value and structure of its offer from British hedge fund TCI, notably since Zodiac last month issued the latest in a spate of profit warnings, weeks after agreeing to the tie-up.
Safran is unwilling to run the risk that the results delay could coincide with another warning and has given itself a few weeks to decide how to alter its 29.47 euro per share bid, the source said.
Despite Zodiac's industrial woes, Safran has so far defended efforts to buy the company and believes it can bring Zodiac's factories under control due to its own track record.
But CEO Philippe Petitcolin is seen as unlikely to put at risk a recent transformation of Safran around core aerospace activities by proceeding with the offer at all costs.
Two sources said they could no longer rule out Safran walking away from Zodiac for the second time in seven years.
The deal's unusual structure was crafted to allow a group of core Zodiac shareholding families to receive Safran shares without losing a longstanding tax status.
It involves a cash bid aimed at ordinary investors holding 68 percent of Zodiac followed by a merger, which would draw in the Zodiac families without the hefty tax bill that would automatically be triggered by a classic cash or share offer.
France's Socialist government has supported the scheme to create a new aerospace champion by agreeing to add its own Safran shares to a shareholder pact between the families, keeping their combined shareholding above a tax-neutral threshold.
If Safran restructures the offer, experts say the families could notionally face hundreds of millions of euros in wealth tax and other charges unless another way can be found to smooth the deal, though the outcome would depend on individual factors.
TCI has argued Safran is wasting its efforts to tailor the deal to family shareholders since Zodiac shares would fall sharply if Safran withdrew its offer. It has called for a shareholder vote before the first part of the deal goes ahead.
Zodiac shares closed on Thursday at 23.56 euros.
(Reporting by Tim Hepher; Editing by Bernard Orr)