Spirit's Q3 Results

In its Q3 earnings announcement, Spirit AeroSystems disclosed that a "substantial doubt" exists about the company's ability to continue as a going concern, and that it will need a significant infusion of liquidity over the next 12 months to operate as it projects to burn another $450 to $550 million over the same time period. 

Boeing Acquisition

In July, Boeing announced plans to re-acquire Spirit in an all-stock deal for $4.7 billion, with a total value of approximately $8.5 billion, inclusive of Spirit's debt (Boeing spun Spirit out in 2005).  

Is Boeing overpaying?  Well, that depends.  

From a purely financial standpoint, the answer, in my opinion, is a resounding “yes.”  

Back-of-the-envelope estimates indicate that if Boeing were to conduct the transaction through a bankruptcy proceeding, it could acquire the assets of Spirit for billions less than it would be paying for the company through the acquisition of stock and assumption of debt.  

That said, a bankruptcy proceeding would likely leave current Spirit shareholders empty-handed and some Spirit creditors with substantial claims against the estate.  Furthermore, bankruptcy has the potential to disrupt operations at Spirit at a time when Boeing absolutely needs the company to perform well from a production and quality perspective.

Is the simplicity of the transaction structure worth the incremental cost? That remains to be seen.