Is Boeing Overpaying For Spirit AeroSystems? – Corporate and Company Law – Corporate/Commercial Law
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In its Q3 earnings announcement, Spirit AeroSystems disclosed that a “substantial doubt” exists about the company’s ability to continue as a going concern…
United States
Corporate/Commercial Law
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Spirit’s Q3 Results
In its Q3 earnings announcement, Spirit AeroSystems disclosed
that a “substantial doubt” exists about the
company’s ability to continue as a going concern, and that it
will need a significant infusion of liquidity over the next 12
months to operate as it projects to burn another $450 to $550
million over the same time period.
Boeing Acquisition
In July, Boeing announced plans to re-acquire Spirit in an
all-stock deal for $4.7 billion, with a total value of
approximately $8.5 billion, inclusive of Spirit’s debt (Boeing
spun Spirit out in 2005).
Is Boeing overpaying? Well, that depends.
From a purely financial standpoint, the answer, in my opinion,
is a resounding “yes.”
Back-of-the-envelope estimates indicate that if Boeing were to
conduct the transaction through a bankruptcy proceeding, it could
acquire the assets of Spirit for billions less than it would be
paying for the company through the acquisition of stock and
assumption of debt.
That said, a bankruptcy proceeding would likely leave current
Spirit shareholders empty-handed and some Spirit creditors with
substantial claims against the estate. Furthermore, bankruptcy has
the potential to disrupt operations at Spirit at a time when Boeing
absolutely needs the company to perform well from a production and
quality perspective.
Is the simplicity of the transaction structure worth the
incremental cost? That remains to be seen.
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