Stork had agreed to acquire 51% of TAT’s two subsidiaries, Piedmont Aviation Component Services LLC and LIMCO. The two sides found the agreement could not be pursued for legal reasons. Piedmont will, however, continue to sell to Stork, which is its largest customer, and TAT and Fokker will maintain their commercial relationship.
I think that for TAT, a public offering is a better alternative than selling the controlling interest in its subsidiaries. By floating LIMCO, TAT will be able to continue to expand its aerospace business in the U.S. and elsewhere. Aerospace, especially the professional niches, is one of the hottest fields in the U.S. today, so I don’t expect TAT’s underwriters to have any difficulty carrying out the offering.
There are a lot of small and medium-sized companies in the U.S. and other countries that can complement TAT’s lines of production, from heating and cooling equipment to electronic components and refurbished aircraft accessories. Over the past two years, TAT’s management has shown itself capable of carrying out expansion plans with the utmost professionalism.
Usually, when a company like First Israel Mezzanine Investors Fund (FIMI) enters a company like TAT, one with a long history but unimpressive growth, the original management team is replaced. FIMI, however, does not take on the management of companies itself but instead “helps” with management and with putting plans into practice. The fact that TAT has grown from a dull, mediocre company into an aggressive and highly profitable operation that has shown fantastic growth shows that the original management team has what it takes to lead the company forward.
While FIMI could well be the catalyst that energized the system, the skill of TAT’s management should be recognized. Since it was management who carried out the transformation, I think that it would be better for the company to go ahead with the offering. The agreement with Fokker would have set TAT back 10 years, since it would have stripped it of its growth engines. It would have had plenty of cash but would have been the same kind of company it was at the beginning. TAT would have distributed a large dividend, but it would have gone back to being the diminutive company it once was. With $50 million in cash and continuing group growth, I think TAT is a success story that will last.
TATTF 1-year chart:
Published originally by Globes [online], Israel business news - www.globes.co.il
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007. Republished on Seeking Alpha with full permission.