Hedge Fund TCI Voices Opposition to Safran's Zodiac Deal

By Robert Wall

LONDON -- Activist hedge fund TCI Fund Management has written to Safran SA and France's stock-market regulator to voice opposition to the aerospace supplier's proposed EUR8.5 billion ($9 billion) takeover of cabin-interiors specialist Zodiac Aerospace and signaled it would vote against the deal.

"Safran is significantly overpaying for Zodiac," TCI Chief Executive Christopher Hohn said in a letter to Safran Chairman Ross McInnes. TCI said it owns almost 4% of Safran shares.

Paris-based Safran last month announced plans to combine with Zodiac to create the world's No. 3 aerospace supplier to Airbus SE and Boeing Co. United Technologies Corp. is the No. 1, ahead of General Electric Co.'s aviation business.

Safran said it would pay EUR29.47 a share for Zodiac in a tender offer. If 50% of shares are tendered, the companies will merge based on an exchange ratio of 0.485 Safran share for each Zodiac share. The structure will allow Zodiac's family shareholders and two institutions to remain investors in the combined company.

Including debt, the deal is valued at EUR9.7 billion.

Safran also would pay a EUR5.50-a-share special dividend to its shareholders before the deal closes.

London-based TCI, which runs more than $10 billon in assets, said the "hugely inflated price" assumed margins at beleaguered Zodiac would fully recover, with little certainty that would be the case. Zodiac earnings have been hammered by a series of missteps, including delays in building seats for Boeing and Airbus jetliners and other equipment.

TCI said the fair value of Zodiac was EUR20 a share. The deal would weigh Safran with debt and encumber its ability to invest in future programs, Mr. Hohn said in the letter.

Safran declined to comment.

TCI also has complained to Safran and the French stock market regulator, the Autorité des marchés financiers or AMF, about the deal's structure. It wants Safran shareholders to get a say over the deal before the tender offer is initiated. TCI said that if Safran didn't commit to seek shareholder backing before launching the tender offer, it would push the issue at the company's annual general meeting in June in the hope of scuttling the deal.

TCI also said Zodiac shareholders, who are being offered cash, are getting a worse deal than family shareholders and the two institutions, which would get Safran shares under the terms of the transaction.

This isn't TCI's first tussle with Safran management. The hedge fund in 2012 blasted Safran management for overpaying on deals, calling its record on acquisitions "one of failure."

Write to Robert Wall at robert.wall@wsj.com

(END) Dow Jones Newswires

February 14, 2017 15:45 ET (20:45 GMT)

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