KLX Acquisition: Boeing’s Shot in the Arm for Global Services



Boeing’s acquisition of KLX

On May 1, Boeing (BA) announced an agreement to acquire aerospace parts distributor KLX (KLXI) for $3.2 billion in cash. The deal includes the acquisition of KLX Aerospace Solutions, which is the company’s primary business. KLX also has an energy services business that Boeing didn’t purchase. On April 27, the Wall Street Journal broke the story, reporting that Boeing was inching closer to buying KLX.

The world’s largest aerospace company also agreed to acquire KLX’s net debt of ~$1.0 billion, taking the deal value to ~$4.3 billion. Boeing is expected to fund the $63.00 per share acquisition mostly through cash in hand and in part through debt.

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Boeing’s stock recent trends

After Boeing’s disclosure of the deal on May 1, the company’s stock opened at $332.50, down 0.3% from its April 30 closing price of $333.60. As the trading hours passed, BA stock declined ~1.2% to close at $329.54 on May 1. This closing price represents an 11.3% discount to its 52-week high price of $371.60 and an 87.8% premium to its 52-week low price of $175.47.

In the last year, Boeing stock has returned ~45.0% to its shareholders. Let’s quickly compare its yearly returns with the peer group:

  • Lockheed Martin (LMT): 9.0%
  • Northrop Grumman (NOC): 25.7%
  • General Dynamics (GD): 2.2%
  • Embraer SA (ERJ): 32.5%
  • Raytheon (RTN): 31.2%

The above comparison shows that Boeing’s returns in the last year are the highest among its peer group in the aerospace and defense category. The iShares US Industrials ETF (IYJ) has a 12.2% exposure to US aerospace and defense companies. Among the aerospace stocks in IYJ’s portfolio, Boeing has the largest weight of ~5.5%.

Series highlights

In this series, we’ll discuss the rationale of Boeing’s KLX acquisition deal. We’ll also discuss the reasons behind the adverse stock price reactions displayed by both companies. In the next part, we’ll look at KLX’s business.


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