On April 8, 2018, Woodward, Inc., a Delaware corporation (the “
Company
”), and its wholly-owned subsidiary, Woodward Aken GmbH, a limited liability company under German law (collectively, the “
Purchasers
”), entered into a Share Purchase Agreement (the “
Agreement
”) with MTU Friedrichshafen GmbH, a limited liability company under German law (“
MTU
”), and MTU America Inc., a Delaware corporation (together with MTU, the “
Sellers
”), both of which are subsidiaries of Rolls-Royce PLC. Pursuant to the Agreement, the Purchasers agreed to acquire all of the outstanding shares of stock of L’Orange GmbH, a limited liability company under German Law, together with its wholly-owned subsidiaries in China and Germany, as well as all of the outstanding equity interests of its affiliate, Fluid Mechanics LLC, a Delaware limited liability company (collectively, “
L’Orange
”).
L’Orange, based in Stuttgart, Germany, supplies high-pressure injection technology for diesel, heavy fuel oil and dual fuel engines that power a wide range of industrial applications including marine power and propulsion systems, special-application vehicles, oil and gas processing, and power generation. L’Orange serves some of the world’s best known specialist diesel engine manufacturers, including MTU, and other industrial engine builders. MTU is a world class engine manufacturer that is part of Rolls-Royce Power Systems.
The aggregate enterprise value for the acquisition of L’Orange under the Agreement is €700 million (US$859 million)
1
, comprised of cash consideration and assumed liabilities. The operating profits of the L’Orange business from and after January 1, 2018 will accrue in favor of the Purchasers, and in exchange, the Purchasers will, in addition to the above purchase price, pay to the Sellers a daily rate of €45,000 ($55,238)1 for the period beginning January 1, 2018 through the day prior to the closing date. The transaction is expected to be consummated in the third quarter of fiscal 2018, subject to clearance from the German antitrust authorities. Following the transaction, L’Orange will be renamed Woodward-L’Orange and will be integrated into Woodward’s Industrial segment.
The Agreement contains customary representations, warranties and covenants by the parties thereto. The principal conditions to closing of the transaction are receipt of applicable approval from the German Federal Cartel Office (or the expiration of any applicable waiting period) and the absence of an order by the German Federal Cartel Office or court preliminarily or permanently prohibiting the transaction.
The Sellers are obligated to indemnify the Purchasers under the Agreement for breaches of representations and warranties and for certain other matters subject to customary conditions, exceptions and caps. Simultaneous with the closing of the transaction contemplated by the Agreement, the Purchasers will procure a representations and warranties insurance policy on customary terms and conditions under which the Purchasers may, subject to certain exclusions, exceptions and caps, seek insurance coverage for breaches of Sellers’ representations and warranties.
Following the transaction contemplated by the Agreement, L’Orange will remain an important partner and supplier to MTU through a long-term supply agreement, with an initial term of 15 years, allowing MTU’s customers to continue to benefit from L’Orange’s high level of expertise, best-in-class service, and innovative research and development.
The foregoing description of the Agreement does not purport to be complete and is qualified in its entirety by reference to the Agreement and the exhibits attached thereto, copies of which the Company plans to file as an exhibit to its Quarterly Report on Form 10-Q for the period ending June 30, 2018.
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1
Conversion to United States Dollars for the purposes hereof is based on a foreign exchange rate as of April 6, 2018 equal to $1.23 United States Dollars per €1 Euro.