Strategic Management for Core-Sector Companies

Group 1
TransDigm: The Acquisition of Aerosonic Corp.
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• TransDigm was founded by Nick Howley and Douglas Peacock in 1993. It focused on
manufacturing a wide variety of highly engineered aerospace components. Approximately 90%
of TransDigm sales were from proprietary parts, approximately 75% of its sales came from parts
for which it was the sole source provider, and approximately 90% of its parts generated less
than $2 million per year in sales.
• All of the products we provide have a common theme, which is to provide feedback to pilots
and/or flight-control systems on how well an aircraft is performing in the airstream. It was
critical for a pilot to know the aircraft's speed, altitude and position in the airstream in order to
manage the aircraft performance and ensure its safety.
• In mid-April, TransDigm and Aerosonic agreed to merge under several terms the most
important being that TransDigm would complete the acquisition in two steps: first, it would
conduct a tender offer to buy shares for $7.75 in cash. If it acquired 90% or more of the shares,
then it would complete a "short form" merger. In the event that TransDigm failed to acquire at
least 90% of the outstanding shares, it would be granted and then exercise a "top-up" option to
buy newly issued Aerosonic shares until it reached the 90% threshold at which time it would
complete the "short form" merger.
• The Hyde Park Team used four methods to calculate the value of the offer by TranDigm of
7.75 per share which were as follows – Price Premium, Trading Multiple, Transaction Multiples
and Discounted Cash Flow Analysis.
• The Aerosonic board accepted the offer for a multiple of reasons. One of the reasons was that
considered the fact that TransDigm acquisition of Aerosonic would likely offer an attractive
opportunity for its employees to work with a company with greater resources and that
Aerosonic's customers would benefit from the added products and capabilities offered by the
larger and more diverse acquirer.
• Having launched the tender offer on May 7, they had to wait and see how many shareholders
would tender their shares by the offer's deadline of midnight on June 4.
• But the day after launching the tender offer, several law firms announced investigations of
potential claims against Aerosonic's board of directors for breaching their "fiduciary duties to
shareholders by failing to adequately shop the company before agreeing to enter into the
proposed transaction
• While Hillman would have to justify both the $7.75 price and the process to his shareholders,
Howley quickly moved forward with TransDigm next negotiation. On May 15, TransDigm
announced it would buy Arkwin Industries for $286 million.

• With a week to go before the "go shop" period expired, shareholders faced a difficult decision
should they tender their Aerosonic shares or hold onto them hoping for a higher offer either
because another bidder might appear or because the lawsuits might force Aerosonic board to
conduct an auction for the company.”