COVID-19  April 6, 2020

Woodward and Hexcel abandon merger plans

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This story has been updated with additional comment from Woodward.

FORT COLLINS — The $6.3 billion merger between Woodward Inc. (Nasdaq: WWD) and Hexcel Corp. (NYSE: HXL) was axed by the companies as the novel coronavirus causes intense strain on the aerospace industry.

In a joint statement Monday, the companies said the ongoing economic impacts of the COVID-19 virus is requiring each side to focus on maintaining its own business.

“We mutually concluded after careful consideration that given the significant uncertainty in the market, it would not be prudent to continue to pursue the combination and integration of our companies in a merger of equals,” Woodward CEO Tom Gendron and Hexcel CEO Nick Stanage said.

In a separate statement over the weekend, Woodward said it laid off 150 contract workers in recent days. The Fort Collins company said it would start reducing its spending through a series of hiring freezes, layoffs and furloughs, reduction of executive salaries and reducing any costs not specific to company operations.

Spokeswoman Tracy Gohari said it has yet to determine how many employees it may have to temporarily furlough or lay off entirely.

At the merger’s closing, Stanage was slated to become the combined Woodward-Hexcel CEO, while Gendron would be chair of the new board for one year before retirement. Gendron is now due to remain as CEO of Woodward for the time being.

Woodward and Hexcel are both suppliers to airplane makers Boeing Inc. (NYSE: BA) and Airbus SE, along with engine makers such as General Electric Co. (NYSE: GE), which have either laid off or furloughed staff and tapped billions in credit to weather several cancellations in airplane orders.

The entire commercial aerospace industry has suffered rapid declines in revenue due to bans on non-essential travel from the U.S. to Canada, Mexico, China, Iran and bans of incoming planes from the European Union. Domestic flights have also seen deep drops in ridership, causing airlines to enter financial crises and ask the federal government for about $60 billion in bailout funds.

However, in an interview two weeks ago, Woodward head of investor relations Don Guazzardo said the companies viewed the COVID-19 virus outbreak as a relatively short-term problem and believed the demand for air travel would return once the virus subsided.

“We’re all going to share in the pain, there is no doubt about that,” he said at the time. “But I would still go back to our belief that the merger is a long-term play and Woodward and Hexcel are both thinking in terms of more like decades.”

The merger was slated to be an all-stock transaction and didn’t require outside financing, making it unlikely that Woodward or Hexcel suddenly lost a credit line tapped to cover the costs of combining.

It also withdrew its 2020 fiscal guidance and issued a stockholder rights plan, a tactic used by companies to increase their shares outstanding in the event of a hostile takeover. Gohari said the rights plan was not made in reaction to a pending bid for Woodward.

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Dan Mika

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