Rockwell Collins, Inc.
) has planned to offload its Kaiser Optical Systems, Inc. unit to
privately held Swiss engineering instrument manufacturer
Endress+Hauser. However, the parties did not disclose the terms
of the transaction, which is slated to close early in its fiscal
2014 and is subject to customary closing conditions.
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Located in Ann Arbor, Mich., Kaiser Optical Systems became a part
of Rockwell Collins back in 2000, following its purchase of K
Systems. The unit mainly makes products like Raman sensors and
instrumentation, advanced holographic components for
spectroscopy, telecommunications, astronomy and ultra-fast
sciences, and components for aircraft display systems. These
products were utilized in various fields ranging from defense,
pharmaceutical and chemical manufacturing, nanotechnology,
telecommunications and education.
The unit, which accounts for less than 1% of Rockwell Collins'
top-line, was a part of the company's Government Systems avionics
division. The company expects its total sales to be around $4.65
billion for 2013. The proposed divestiture is a significant
attempt by Rockwell Collins to have a streamlined business.
The company is focused on restructuring its operations through
acquisitions and divestitures. Last month it announced plans to
acquire the airline communications and information processing
solution major, ARINC Inc., a portfolio company of The Carlyle
Group. The buyout is set at a whopping $1.39 billion. The
acquisition is subject to regulatory approval and other customary
Following the completion of the deal, Rockwell Collins' segment
portfolio will constitute 54% of commercial and 46% government.
ARINC Inc. is a frontrunner in the aviation management industry
and offers technical support to almost every sphere of the
airline business starting from pilots, operators, maintenance,
passengers, and controllers to regulators, security and airport
The buyout will bring together two industry majors in the field
of aviation management services. The combination of Rockwell
Collins' advanced on-board aircraft information systems and
state-of-the-art air to ground communication services will enable
the company to provide superior information management solutions
to its customers.
Rockwell Collins is the foremost global supplier of
communications and avionics equipment for both commercial and
military customers. Its balanced exposure to both types of
customers allows the company to use government funding to develop
products for the dual-end market. Going forward, the company's
cash deployment strategy would continue to attract investors.
Nevertheless, we remain concerned about the company's high
exposure to fixed price contracts and high research &
development overhead. The company presently retains a short-term
Zacks Rank #3 (Hold).
However, stocks worth considering in this space are Zacks Ranked
#1 (Strong Buy)
Alliant Techsystems Inc.
Elbit Systems Ltd.
), and Zacks Ranked #2 (Buy)
B/E Aerospace Inc.