Woodward expects smooth merger transition despite looming antitrust scrutiny

FORT COLLINS — Woodward Inc. (Nasdaq: WWD) CEO Tom Gendron pushed a sense of long-term confidence for his company in what could be Woodward’s final annual shareholder meeting before it combines with Hexcel Corp. (NYSE: HXL).

Speaking at the company’s annual shareholder meeting in Fort Collins Wednesday morning, Gendron said the pending merger with Connecticut-based Hexcel makes sense for investors as it plans to buy back $1.5 billion worth of its stock in the months after the deal’s close, and the new company would have the size to take on the research departments of other aerospace supplier giants.

“We really see having the scale, particularly in aerospace and also in industrial becoming an issue,” he said. “Programs are larger, they’re more expensive to take on, you’re going to have to have the wherewithal to invest, and customers are going to look at that. This gives us the scale to advance (research and development) and advanced program investments.”

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Woodward and Hexcel announced a merger of equals earlier this month, which would create a company with combined revenues of $5.3 billion in 2019 and $1 billion of free cash flow for investors. 

Woodward-Hexcel intends to base itself in Fort Collins after the deal closes, which is expected by the end of the third quarter of 2020.

Gendron in particular emphasized the combined company’s ability to compete in the race to make aerospace more fuel-efficient, a pressure coming from climate-change activists worried about emissions and airline operators trying to keep down their largest expense.

“Everyone’s trying to drive for more efficiency, whether it’s an engine or a turbine, or even if it’s just a better use of energy in the world,” he said.

In an interview after the meeting, Woodward director of investor relations Don Guzzardo said the two companies are holding off on major integrations until they receive shareholder approval to merge. The companies plan to release a proxy letter starting the shareholder voting period late next month.

The largest potential slowdown to the merger could be the combined portfolio of military aerospace parts, which governments with large military interests have scrutinized in past industry mergers.

Woodward itself was granted a $10.5 million contract from the U.S. Navy on the morning of the meeting.

China in particular could prove a major slowdown, as its review of United Technologies Corp.’s $30 billion takeover of Rockwell Collins Inc. last year delayed the deal’s closure by two months.

Guzzardo said the two companies believe they will draw less of a review from regulators because there’s a large difference between Woodward’s focus on control systems and Hexcel’s focus on materials production.

“We don’t think we’re going to have to go through a rigorous process of identifying or interviewing competitors, customers like you do in a Rockwell Collins-UTC-type merger, because they had a lot more overlap in their businesses than we had,” he said.