Rockwell Collins (COL) and B/E Aerospace (BEAV) announced Sunday that they have entered into a definitive agreement under which Rockwell will acquire B/E for approximately $6.4B in cash and stock, plus the assumption of $1.9B in net debt.

Under the terms of the agreement, each B/E shareowner will receive total consideration of $62.00 per share, comprised of $34.10 per share in cash and $27.90 in shares of Rockwell Collins common stock, subject to a 7.5% collar. The transaction is expected to generate run-rate pre-tax cost synergies of approximately $160M, or $125M after tax. In addition, Rockwell Collins expects to make certain conforming purchase accounting adjustments resulting in improved pre-tax earnings of approximately $60M-$90M per year for the first six years after the acquisition.

The transaction is expected to be double-digit accretive to earnings per share in the first full fiscal year. Upon completion of the transaction, which is expected in the spring of 2017, current B/E shareowners will own approximately 20% of the combined company.

Rockwell Collins expects to finance the cash portion of the transaction with debt financing, a "significant portion" of which has been committed. Upon completion of the transaction, Rockwell Collins said it plans to maintain its current dividend policy, adding that it intends to pay down $1.5B of the new debt by the end of its fiscal 2019 while curtailing its share repurchase program to a level "sufficient to offset dilution."

Werner Lieberherr, CEO of B/E Aerospace, will become EVP and COO of a newly created aircraft interior systems segment for Rockwell.

"On a pro forma basis, Rockwell Collins would have nearly 30,000 employees, $8.1B in revenues and $1.9B in EBITDA for the twelve months ending September 30... We see tremendous opportunity to better serve our commercial aviation, business jet and military customers through broader offerings... We expect to generate significant run-rate cost synergies and over $6B in free cash flow over the next five years with expected free cash flow conversion of greater than 100%. In addition, by leveraging our respective airline and OEM relationships, as well as Rockwell Collins' business jet dealer network and military aircraft positions, we firmly believe there are revenue synergies that create meaningful upside to our business case," Rockwell remarked.