Analysts saw a missed opportunity for majority shareholders and management of Wesco Aircraft Holdings Inc., after the Valencia aerospace parts and supply chain provider announced it would be acquired by Platinum Equity, a private equity firm in Beverly Hills, for $1.9 billion. The deal was announced Aug. 9 and is expected to close at the end of this year; Wesco reported earnings for the third fiscal quarter that same day. Shares of Wesco spiked 76 cents to $11.08 the day of the deal, only to drop 14 cents a couple days later. Shareholders are expected to receive $11.05 per share in cash according to deal terms, representing a premium of 27.5 percent over the course of a 90-day volume weighted average share price through May 24. Analyst Michael Ciarmoli with SunTrust Robinson Humphrey believes the company could have gotten a higher take-out price between $13 and $15, in a research note dated Aug. 9. Wesco may have gotten to this price, had the board waited for its 2020 initiative to continually increase performance for revenue growth and margin expansion, Ciarmoli said. The company’s 2020 plan was announced in the second quarter of last year and is focused on aligning the company’s footprint with its customer and supply base, refining organizational structure for accountability, reducing management overlap and investing in automation and other tools for effective inventory management. Wesco suffered a full-year loss in 2017, which spurred the initiative. “As these activities are completed, the associated temporary costs are expected to decline significantly. Based on our continued progress to date, we remain confident in our ability to achieve our target of at least $30 million in pre-tax run-rate savings from Wesco 2020,” Todd Renehan, chief executive of Wesco, said in a conference call for the third quarter. Roughly nine law firms are looking to bring class action lawsuits on behalf of shareholders, according to a previous Business Journal report, because of the acquisition payout price. New York-based Monteverde and Associates on Oct. 5 filed its lawsuit on behalf of Wesco shareholders, maintaining that the company provided shareholders “incomplete and misleading information” about the sales process leading up to the acquisition; the valuation analyses performed by Wesco’s financial advisors, Morgan Stanley and Co., as well as J.P. Morgan Securities; and the nature of the work Morgan Stanley provided Platinum and its affiliates two years prior to the date of its fairness opinion for Wesco. Wesco’s three largest shareholders, by contrast, support the transaction and voted their shares in favor of it as of Oct. 24. These shareholders are affiliates of Carlyle Group, Makaira Partners and Snyder Family Trusts. Wesco said in a statement that it will become privately held as a result of the acquisition, and its common stock will not be listed on the public market. Platinum plans to combine the company with Pattonair, a supply chain management services company it owns in the United Kingdom. The company also owns Electro-Rent Corp., a testing and computer equipment supplier in Van Nuys. Wesco reported during the earnings call an adjusted net income of $22.7 million (23 cents a share) for the quarter ending June 30, up from $20.1 million (20 cents) in the same period a year earlier, according to a previous report from the Business Journal. Revenue increased 8 percent to nearly $442 million; analysts expected earnings of 23 cents on revenue of $436 million, according to Thomson Financial Network. Ciarmoli told investors in an earnings preview Oct. 21 that “cautious and conservative is the name of the game” as the company entered its earnings season for the third fiscal quarter. “With the 737 MAX still grounded, we believe risks to both 2019/2020 estimates exist should a production cut or halt materialize,” added Ciarmoli, maintaining trust in the defense sector but acknowledging that “profit taking and a rotation into potentially oversold industrials is a risk factor.” Ahead of the 2020 U.S. Presidential Election, the SunTrust analyst warned that defense spending may come to a halt in favor of social programs if a Democrat such as Elizabeth Warren or Joe Biden wins the White House. Wesco has a global workforce of about 3,000 in 17 countries, serving more than 7,000 customers. Commercial and military clients include Boeing Co. and Lockheed Martin.
