Industry Week in Review – August 16, 2013

The Department of Justice (“DOJ”), six states, and the District of Columbia jointly filed a lawsuit in Federal court on August 13th to stop the proposed merger between U.S. Airways and American Airlines.  The proposed transaction would bring American Airlines out of bankruptcy and create the world’s largest airline with a combined 100,000 employees and 187 million annual passengers.

According to the DOJ, the potential deal violates U.S. antitrust law because customers would face significant increases in fares and fees from the loss of competition.  Although the two airlines currently only compete directly on 12 routes, the merger would eliminate a key competitor on more than 1,600 other routes.  One main airport of concern is Ronald Reagan National Airport in Washington D.C., where the combined airline would control 69% of all flight slots, approximately six times more than the closest competitor.  Upon the lawsuit filing, both companies announced they will mount a vigorous defense and pursue any legal action to move forward with the transaction.

In the government services space, Engility Holdings announced that it has replaced its existing $500 million senior secured credit facility with a new $450 million senior secured credit facility.  With the change, the pure-play government services contractor hopes to reduce future interest expense, enhance cash flow, and gain flexibility to grow its business.

Big Movers

TASER International Corp. (Up 17.9%) – Shares were up this week after the company announced multiple new deployments of its AXON flex cameras and service used in support of law enforcement.

DigitalGlobe, Inc. (Down 7.4%) – Shares were down this week after the company announced mixed earnings reviews after reporting earnings per share below analyst estimates and quarterly revenue above analyst estimates.

Relevant Transactions

Rockwell Collins, Inc. to acquire Carlyle Group’s ARINC Inc.,a provider of communications, engineering, and systems integration support to the commercial aerospace industry.  Rockwell will use the acquisition to further develop its information management systems and expand its services to the commercial aviation and transportation sectors       to diversify away from government contract work. The acquisition is valued at $1.39 billion.

Aurora Capital to acquire National Technical Systems, Inc., a provider of testing and engineering services to the aerospace, defense, and commercial industries. Aurora will use the acquisition to strengthen its portfolio of aerospace and defense engineering capabilities.  National Technical Systems shareholders will receive $23 per share, representing a transaction value of approximately $267 million.

Cargo Airport Services USA, LLC acquired Integrated Airline Services, a provider of ground handling services and logistics support.  Cargo Airport Services, a portfolio company of ICV Partners, will use the acquisition to strengthen its North American operations and expand its capabilities for increased operational efficiency.  The terms of the deal were not disclosed.

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