Boeing Offer for Aircraft Parts Firm KLX Leaves Shareholders Cool

Print Email

Boeing Co. (NYSE: BA) on Tuesday morning announced that it has agreed to acquire KLX Inc. (NASDAQ: KLXI) in an all-cash deal valued at $3.25 billion ($63 per share) plus the assumption of about $1 billion in KLX debt. The acquisition is conditional upon the successful divestment and separation of KLX’s Energy Services Group, an oilfield services and equipment rental division based in Houston.

KLX distributes aviation parts and services to the aerospace industry and will become part of Boeing’s Global Services division and will be integrated into Aviall, Boeing’s existing parts and services business.

KLX posted a new 52-week high of $82.50 last Thursday following a report that Boeing was going to buy the firm. Before the report, the stock closed at $73.39. The $63 per share offer may seem low, but Boeing is buying about 75% of KLX’s estimated 2018 revenues of $2 billion; the energy services business is pegged by the company to produce revenues of $500 million this year. Including debt, the deal is worth about $83 a share based on 50.74 million shares outstanding.

Stan Deal, president and CEO of Boeing Global Services, said:

This acquisition is the next step in our services growth strategy, with a clear opportunity to profitably grow our business and better serve our customers in a $2.6 trillion, 10-year services market. By combining the talent and product offerings of Aviall and KLX Inc., we will provide a one-stop-shop that will benefit our supply chain and our various customers in a meaningful way.

The KLX acquisition is the biggest move so far announced in Boeing’s drive to build its services business into a $50-billion revenue generator by the middle of the next decade. That strategic focus was one of CEO Dennis Muilenburg’s first announced goals for the company after he took the reins from Jim McNerney. The Global Services posted revenues of about $15 billion in 2017.

The transaction is expected to close in the third quarter of this year, following regulatory approval and acceptance by KLX shareholders. The company’s energy services division is being spun off into a separate company that is expected to begin operations without any debt. The sale to Boeing and the spin-off of the energy services business are both taxable transactions for shareholders.

Boeing stock traded up about 0.1% in Tuesday’s premarket to $334.00, in a 52-week range of $175.47 to $371.60.

Shares of KLX traded down about 7.3% in Tuesday’s premarket to $72.50, after closing at $78.23 on Monday. The stock’s 52-week range is $45.73 to $82.50, and the 12-month price target was $76.75.

Shareholders appear to want a better deal, and they’re not expecting to get it with the spin-off of the relatively small energy services business. Will that be enough to force Boeing to sweeten the offer? Stay tuned.

I'm interested in the Newsletter