(Bloomberg) -- Rockwell Collins Inc. is under pressure from activist fund Starboard Value LP to reconsider its $6.4 billion purchase of B/E Aerospace Inc. and instead explore alternative options, including selling itself, according to people familiar with the matter.
In addition to Jeff Smith's activist fund, at least three other top-25 shareholders are planning to reject the B/E Aerospace deal in favor of a sale, the people said, asking not to be identified because the details are private. The planned acquisition, which is slated to close in early 2017, is still subject to a shareholder vote.
Rockwell Collins is aware of the discontent among some of its shareholders, the people said. It's unclear if the aerospace supplier is open to the idea of a sale.
Pam Tvrdy, a spokeswoman for Rockwell Collins, declined to comment on the Starboard overture.
“We remain confident that the acquisition of B/E Aerospace will create significant value for our shareholders,” Tvrdy said in an e-mailed statement. “We're excited to bring together these two industry leaders and look forward to closing this transformative transaction in the spring of 2017.”
A representative for B/E Aerospace didn't respond to a request seeking comment. A representative for Starboard confirmed the fund has a stake in Rockwell but declined to comment further.
Shares in Cedar Rapids, Iowa-based Rockwell Collins rose as much as 4 percent in after-market trading. The stock is up about 17 percent since it agreed to acquire B/E Aerospace in October, leaving it little changed from the start of the year. Shares closed Wednesday at $92.72, valuing the company at about $12.1 billion.
B/E Aerospace fell as much as 5 percent in late trading.
Potential Targets
Rockwell Collins's chief executive officer, Kelly Ortberg, said Oct. 23 that an acquisition of B/E Aerospace “sets us up for the future.” The deal would add the largest supplier of equipment for aircraft cabins to Rockwell Collins's portfolio, which is centered on aircraft communications and computing equipment.
Rockwell Collins studied 80 potential merger targets last year as part of a strategic overview before settling on B/E Aerospace, according to a Nov. 23 regulatory filing. B/E Aerospace explored possible deals with three other companies, none seriously, according to the filing.
Deal Questions
The transaction has puzzled some analysts and investors, given the lack of overlap between Rockwell Collins's high-technology avionics business and B/E Aerospace's product line-up of deluxe jetliner seats, lavatories and galley equipment.
Feedback from Rockwell Collins shareholders “seemed pretty unanimous and consistent” with the 6 percent plunge in its shares after the Oct. 23 announcement, Carter Copeland, an aerospace analyst with Barclays Plc, said in an Oct. 25 note to clients. “This deal is a bridge too far for most folks we spoke to.”
Under the terms of the merger agreement, Rockwell Collins would pay B/E Aerospace a $300 million fee if, among other considerations, it fails to win shareholder approval or if it terminates the merger in favor of a “superior proposal,” according to a regulatory filing.
--With assistance from Beth Jinks To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net, Julie Johnsson in Chicago at jjohnsson@bloomberg.net. To contact the editors responsible for this story: Elizabeth Fournier at efournier5@bloomberg.net, Elizabeth Wollman, Devin Banerjee
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