(Adds analyst reaction)
By Cyril Altmeyer and Tim Hepher
PARIS, March 14 France's Safran on
Tuesday reaffirmed its interest in acquiring aircraft seats
maker Zodiac Aerospace despite the latest in a series of profit
warnings, but pledged to take Zodiac's new forecasts into
account in takeover discussions.
Paris-based Zodiac earlier posted first-half revenues down
1.8 percent to 2.445 billion euros and reaffirmed revenue
targets while slashing its forecast for full-year operating
The French aircraft parts and systems supplier disclosed new
cost overruns in its Zodiac Seats UK unit, which is developing
seats for United Airlines, on top of cabin problems and weak
markets for helicopters, business jets and regional aircraft.
Underlying sales fell 2.6 percent.
Zodiac now sees full-year core operating income falling
around 10 percent, against its previous forecast of a 10-20
It said the new setback did not alter its goal to return to
historical levels of profitability by 2019/20.
British hedge fund TCI, which owns shares in both firms and
opposes the takeover by Safran, has questioned the reliability
of Zodiac's 2019/20 targets following a two-year industrial
crisis and multiple profit warnings.
"Safran's deal to acquire Zodiac is hugely overpriced and
will be enormously destructive to Safran shareholder value", TCI
Fund Management said in an emailed statement.
TCI said Safran must pull out of the deal.
Safran insists it can secure Zodiac's 2019/20 goals, which
are key to the deal's valuation, by using its greater industrial
clout to improve efficiency and drive down costs.
But shortly after Tuesday's announcement by Zodiac, Safran
said it contained "new developments" compared with information
available when the firms announced the merger plan on Jan. 19.
"Safran confirms the strategic interest for the acquisition
of Zodiac. Safran confirms its confidence in its own ability to
restore the operating profitability of the businesses currently
in difficulty," it said in a statement.
"Safran and Zodiac Aerospace are continuing their exclusive
negotiations and will take into account the consequences of
these developments in their discussions," it added.
Raymond James analyst Harry Breach said the new industrial
problems were likely to increase pressure on Safran from some
shareholders and lowered his estimate of the probability of the
deal going through to "roughly 60 percent" from 75 percent.
Zodiac shares closed on Tuesday at 27.465 euros, some 7
percent shy of Safran's offer price of 29.47 euros.
A spate of problems mainly at Zodiac's plants in the United
States has upset both Airbus and Boeing, which rely on parts
arriving on time to keep production flowing smoothly.
Zodiac CEO Olivier Zarrouati said relations with Airbus had
improved after Zodiac placed a large team in Toulouse to assist
with deliveries of A350 aircraft following delays in seats and
toilets, but noted this had weighed on costs in the first half.
"There is still a lot of work to do, but we don't think we
will have the same type of incremental effort in the second half
and we have reflected that in our forecasts," Zarrouati said.
(Additional reporting by Adrian Croft in Paris and Maiya Keidan
in London; Editing by Ruth Pitchford and Bill Rigby)