Héroux-devtek sell-off boosts shares

TWO DIVISIONS GOING TO U.S. OWNER Longueuil-based firm returns to roots of making landing-gear components

Management had said they were exploring avenues to unlock the true value of the company’s stagnating share price, but still no one saw it coming.

Héroux-Devtek Inc.’ s surprise sell-off Tuesday of its aerostructures and industrial turbine businesses to Port- land, Ore., firm Precision Castparts Corp. for $300 million was met with paeans of praise from the investment world. Most importantly, it rewarded the company in a more tangible way, which company president Gilles Labbé said was the point of the exercise in the first place: Its long-languishing stock rocketed 33 per cent on the news.

The company is returning to its roots of making landing-gear components for civil and military aircraft, which still accounts for two-thirds of its $380 million in business and of its 1,508 employees.

Héroux-Devtek had long said, and repeated as recently as last year, that it wanted to expand its aerostructure division and was on the prowl for acquisitions.

The company also built a large aerostructure facility in Queretaro, Mexico, to be close to Bombardier Inc.’ s facility there and to supply its fellow Montreal firm and others with sub-assemblies.

In a conference call, Labbé suggested, but stopped shy of saying, that the company had solicited bids for its aerostructure and industrial businesses.

Precision Castparts was “eager to attain (the purchase) in the shortest possible time frame.”

Precision Castparts spokesperson Dwight Weber, however, said “it was likely” that his firm had initiated the deal as it has been casting around for acquisition targets for some time.

Analysts agreed the $300 million Héroux-devtek negotiated was “anexcellent valuation,” more than twice the two groups’annual revenues.

Of the $230 million in pro- ceeds after taxes, HérouxDevtek will probably devote the bulk of it to its own landing-gear acquisitions in as well as cash distribution to shareholders.

“Part of our job is always to evaluate what we can do for our shareholders, so of course we had discussions regularly with the board (of directors) on that subject,” Labbé said.

“Over the last two years, our stock basically was trading under value in spite of recommendations from many analysts. … The stock was worth a lot more.”

“We’ve done the job in terms of delivering in the last two years – more revenues … more profitability, new products. We’ve done all sorts of things to improve the company and the market never really gave us the real value. So at that point, I mean. …”

Labbé said he expected questioners to ask “in many different ways” whether he eventually would sell the landing-gear division as well.

“The board has not decided to do that,” he said. “We are builders.”

Labbé said he is the only non-independent member of the board, which made it more objective.

He said there are no job cuts planned: On the contrary, Precision Castparts aims to build on Héroux’s foundations.

“Value is one thing, but we have a buyer here who wants to build this business.”

“We wanted a buyer who will take care of our customers and our employees and give our employees a future and some growth opportunities.”

Analyst Cameron Doerksen of brokerage National Bank Financial said the company is reaping another $230 million in cash to add to a balance sheet “that was already in very good shape.”

Labbé said the company would concentrate on expanding its landing-gear division through organic growth and acquisitions. Héroux-Devtek is the world’s third-largest landing-gear manufacturer after Goodrich Corp. and Messier Dowty.

He said “we’re looking at whatever is complementary to aircraft landing gear. It could be other products and services connected to what we know best.”

“We feel there is very good growth still to be achieved in landing gear.”

The deal is expected to close in August or September.