ESL Esterline Technologies Corp.

By Doug Cameron 

TransDigm Group Inc. agreed to buy rival Esterline Technologies Corp. for $4 billion, a deal that would put the aerospace-parts maker in a class of giant suppliers to the jetliner industry.

TransDigm's largest-ever deal would add to its product line the cockpit components, sensors and specialized parts Esterline makes for Boeing Co. and Airbus SE commercial and military aircraft.

Shares in Esterline rose 30% to $115.08 on Wednesday, while TransDigm's shares fell 4% to $336.81.

Analysts have viewed Bellevue, Wash.-based Esterline as an acquisition target for months because some of its customers are looking to make more parts themselves to cut costs and improve productivity. The Wall Street Journal reported in July that the company was looking for possible buyers.

TransDigm has sought to insulate itself from the changing demand of plane makers by buying companies that are the sole suppliers for certain parts. The proposed deal would add about $2 billion to the $3.7 billion in sales TransDigm has forecast for fiscal 2018.

The focus on proprietary parts bolsters TransDigm's position in aerospace supply chains alongside United Technologies, and the aviation arms of General Electric Co. Honeywell International Inc. and Precision CastParts, a unit of Berkshire Hathaway Inc.

The deal is the latest in a string of mergers that have reshaped the aerospace industry.

Last year conglomerate United Technologies signed a deal to buy airplane-parts maker Rockwell Collins Inc. for $23 billion, in what would be the biggest aerospace deal in history, creating a supplier with about $50 billion in annual sales. That deal is expected to close soon.

Boeing closed a deal this week to pay about $3.2 billion for parts specialist KLX Inc. Boeing executives say they remain on the lookout for deals to expand the company's services arm.

And earlier this year, Northrop Grumman Corp. bought fellow defense contractor Orbital ATK Inc. for nearly $8 billion.

Esterline sold its Kirkhill seals business to TransDigm earlier this year for $50 million and in January appointed a new chief financial officer, Stephen Nolan, with a long record overseeing mergers and acquisitions. Mr. Nolan was previously finance chief at Vista Outdoor Inc., the outdoor sports specialist spun out of the merger between Alliant Techsystems Inc. and Orbital Sciences Corp.

Esterline's history dates back to the Weston Electrical Instrument Company founded in 1888. In 2012, activist hedge fund Relational Investors disclosed a 6.6% stake in Esterline and unsuccessfully pushed for a sale of the company. More recently, First Pacific Advisors disclosed a large stake in the company that resulted in Esterline appointing a new board member.

Cleveland-based TransDigm said it is offering $122.50 a share in cash for Esterline's outstanding stock, a 38% premium to Tuesday's closing price of $88.79. That is richer than analysts expected.

The transaction has been approved by the boards of both companies and is expected to be completed during the second half of next year, TransDigm said.

--Micah Maidenberg contributed to this article.

Write to Doug Cameron at doug.cameron@wsj.com

(END) Dow Jones Newswires

October 10, 2018 11:23 ET (15:23 GMT)

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