Relational Said to Nominate Two Board Directors at B/E Aerospace

Jun 04, 2014 12:01 am ET

June 4 (Bloomberg) -- Relational Investors LLC, the activist fund co-founded by Ralph Whitworth and David Batchelder, nominated two directors at B/E Aerospace Inc. before the aviation supplier postponed its annual meeting amid a strategic review, two people familiar with the matter said.

Relational, which disclosed a B/E Aerospace stake of about 3.5 percent May 15, submitted Batchelder and Managing Director Matthew Hepler as candidates before this week’s deadline, said the people, who asked not to be identified because the nominations aren’t yet public.

B/E said yesterday it is delaying the shareholder event planned for July 24 while weighing options that may include divesting some assets. The six-member board has two directors up for re-election, including Robert Khoury, who is a co-founder and the brother of Chairman and Co-Chief Executive Officer Amin Khoury.

“As announced on May 4, 2014, the company is exploring strategic alternatives which could include, amongst others, a possible spinoff or other separation of selected businesses within the company, a merger, or other strategic transactions involving the company or its businesses,” B/E said.

B/E said it will schedule a new annual meeting and file amended proxy materials “once a final determination has been made.”

B/E Response

Greg Powell, vice president for investor relations at Wellington, Florida-based B/E, couldn’t be reached for comment about the nominations by San Diego-based Relational, which manages about $6 billion.

“B/E Aerospace has great core assets and a strong competitive position,” Relational’s Hepler said May 15 in an e- mailed statement. “We welcome the company’s announcement to explore strategic alternatives and will encourage the board to evaluate and pursue opportunities, in a disciplined manner, that will maximize value for all shareholders.”

Citigroup Inc. and Shearman & Sterling LLP are helping B/E explore alternatives as part of the review, which surprised some investors after the company said in April that it was working on two acquisitions. B/E said June 2 it was purchasing aerospace suppliers Emteq Inc. and F+E Fischer + Entwicklungen GmbH for about $470 million.

B/E, known for making aircraft seats, also supplies aircraft beverage makers, galley chillers, oxygen and lighting systems and aerospace fasteners. It also has made a foray into the oil and gas equipment-distribution business.

Duties Split

Amin Khoury, 75, co-founded the company with his brother in 1987. As co-CEO, Amin Khoury has been splitting his executive duties with operations chief Werner Lieberherr since the start of the year.

An outright sale of B/E doesn’t appear to be among the most-likely outcomes of the company’s review, two Oppenheimer & Co. analysts wrote yesterday in a note to clients.

In contrast to the May 4 announcement, yesterday’s release no longer includes “an explicit reference to the potential ‘sale’ of the company as a whole” as one of the options under review, Oppenheimer’s Yair Reiner and William Lee wrote.

Together with the company’s two acquisitions, “the latest release appears consistent with the potential separation” of the consumables unit that includes B/E’s oil and gas purchases and retention of the commercial-aircraft and business-jet divisions, wrote Reiner and Lee, who are based in New York.

Aviation Sales

B/E’s aviation sales have grown as planemakers Boeing Co. and Airbus Group NV compiled a record backlog of more than 10,000 orders, according to data compiled by Bloomberg Industries. Revenue at the commercial-aircraft and business-jet operations reached $2.2 billion in 2013, out of $3.48 billion companywide.

Relational’s holdings include stakes in energy group Hess Corp., agricultural commodity processor Bunge Ltd., snacks supplier Mondelez International Inc., X-ray machine maker Hologic Inc. and air-conditioning manufacturer Ingersoll-Rand Plc, according to its most recent holdings disclosures. Third Point LLC, the hedge fund run by Daniel Loeb, exited its B/E holdings in the first quarter, according to a May regulatory filing.

Founded in 1996, Relational buys stakes in companies it considers undervalued and then lobbies management and boards for changes to boost investor returns. In recent years the firm has targeted industrial companies including equipment manufacturer SPX Corp., bearings maker Timken Co., machinery builder Illinois Tool Works Inc. and hazardous waste disposer Clean Harbors Inc.

For the past year, Whitworth has served as interim chairman of Hewlett-Packard Co. after urging changes to turn around the largest personal-computer maker.

Activist investors tend to buy at least 5 percent of a company’s stock and flag their intention to actively engage executives and directors by disclosing their holding in a 13D filing with the U.S. Securities and Exchange Commission.