Aerospace and defense exchange traded funds climbed after Rockwell Collins (NYSE: COL) acquired B/E Aerospace (NasdaqGS: BEAV) to tie together two of the largest suppliers to airlines and plane makers.
On Monday, the iShares U.S. Aerospace & Defense ETF (NYSEArca: ITA) gained 1.1% and SPDR S&P Aerospace & Defense ETF (NYSEArca: XAR) rose 1.3%.
Rockwell Collins agreed to pay $6.4 billion to buy B/E Aerospace in cash and stock, a 22.5% premium to Friday’s closing share price, the Wall Street Journal reports.
COL shares plunged 6.4% on the deal while BEAV shares surged 15.8%.
ITA tracks U.S. companies that manufacture commercial and military aircrafts and other defense equipment, including a 3.5% tilt toward COL and 2.4% to BEAV.
XAR takes a less top heavy approach to component weights and follows a more equal-weight methodology, including a 4.6% position in BEAV and a 4.8% position in COL.
[related_stories]Rockwell Collins Chief Executive Kelly Ortberg explained that the combination offered substantial cost synergies and the ability to cross-sell electronics and plane fittings, along with positioning the merged companies to lead the development of so-called smart aircrafts – aerospace companies are heavily spending on development of aircraft systems and passenger facilities connected via satellite with the internet.
“B/E is very strong in relationships with airlines,” Ortberg told Reuters. “We’re stronger with aircraft makers as well as business aviation operators and the military. We’ll be able to sell our respective products into a much broader market base than either of us could do independently.”
B/E Aerospace is one of the world’s largest makers of aircraft seats and other interior fittings such as galleys, acquiring half of the market for coach seats and an even larger piece of luxury business-class seats.
While the industry has experienced a slowdown due to a stagnant business jet market, Ortberg expects hundreds of older widebodies could upgrade with new seats and systems over the next several years.
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SPDR S&P Aerospace & Defense ETF