Aerospace and defense suppliers Woodward Inc. [WWD] and Hexcel Corp. [HXL] on Monday announced they have mutually terminated their merger agreement, saying the ongoing coronavirus pandemic has limited the benefits to the combination.
“While we both believed from the outset, and continue to believe, in the benefits of a combined Woodward and Hexcel, 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,” Tom Gendron and Nick Stanage, the chairmen, presidents and CEOs, respectively, of Woodward and Hexcel, said in a joint statement.
The companies also said the pandemic is forcing them to focus on their respective businesses. The COVID-19 pandemic has seriously crimped global air traffic and President Trump in March signed a $2.2 trillion economic stimulus package that provides $25 billion in loan guarantees for passenger air carriers, $4 billion for cargo air carriers, and $17 billion for national security-related businesses.
Woodward and Hexcel on Jan. 12 announced that they would combine into a $5.3 billion company, which would have been the sixth largest supplier of aircraft systems and composites for commercial and military aircraft. Both companies also support industrial sectors.
Gendron and Stanage also said that “We continue to be hopeful that our two companies will fund opportunities to collaborate on next-generation platforms in the future to the benefit of our customers.”
Given the mutual decision to terminate the merger agreement, neither company will have to pay a termination fee.
Woodward, which has annual sales of around $2.9 billion, has capabilities in cockpit controls, engine actuation, engine controls and sensors, fuel systems, actuation sensors and controls on wings, and oil and air management for engines. Hexcel, which has sales of around $2.4 billion, provide advanced composite materials for aircraft and engines.
Both companies announced cost reduction efforts due to the impacts the pandemic is having on their industries. Hexcel is freezing hiring, restricting travel, curtailing capital expenditures, scrutinizing all discretionary spending, and evaluating employment levels to align with lower customer demand. Hexcel has also adopted a limited duration shareholder rights plan aimed at preventing a hostile takeover of the company during “this period of economic uncertainty and market volatility.”
Woodward adopted a similar shareholder rights plan and is also freezing hiring, laying off and furloughing employees, reducing salaries for officers and directors, freezing wages, eliminating bonuses for 2020, reducing non-essential costs, reducing working capital, limiting capital expenditures to business-critical items, and reducing the quarterly dividend. The company also withdrew its 2020 financial guidance.
Gendron had planned to retire a year after the merger was completed but now will remain with the company in his current capacity.