United Tech in Takeover Talks With Rockwell Collins -- 2nd Update
August 07 2017 - 06:12PM
Dow Jones News
By Dana Mattioli and Joann S. Lublin
United Technologies Corp. has made an approach to acquire
Rockwell Collins Inc., but the two aerospace suppliers are still
wrangling over the price of a takeover that would exceed $20
billion, said people familiar with the matter.
United Technologies recently made an initial offer of less than
$140 a share, according to a person familiar with the matter. The
two sides are still in discussions and it is unclear whether the
talks will result in an agreement, the people said.
The timing of the discussions is unusual as they come just a few
months after Rockwell Collins closed on its $6.4 billion purchase
of B/E Aerospace. United Tech executives have said recently that
they are looking for potential acquisitions, but suggested they
would focus on smaller deals.
Rockwell Collins had a $19.4 billion market value as of Friday's
close. The company's share price rose 6.8% to $127.07 on Monday,
after earlier reports of the discussions. Shares of United
Technologies fell 2.4% to $118.52.
A deal would increase United Technologies' role as a significant
supplier to Boeing Co. and Airbus SE as the aerospace industry
boosts production for a new generation of jets. The company already
owns one of the world's biggest jet-engine makers, Pratt &
Whitney, and an aerospace division that makes parts such as wheels
and landing gears.
Rockwell specializes in cockpit displays and communications
systems for passenger jets and military programs. In April, the
Cedar Rapids, Iowa, company closed its acquisition of B/E
Aerospace, a maker of plane seats and interiors. The deal added
almost $3 billion in annual sales to a company with $5.3 billion in
revenue.
In June, United Technologies Chief Executive Greg Hayes told
analysts the company, which had about $7 billion in cash, was
looking to spend roughly $1 billion on acquisitions this year.
"As far as bigger M&A, it's something we always look at, but
I am reluctant to go out and pay some of the prices that we see
today," Mr. Hayes said at the Paris Air Show.
The Farmington, Conn., company also manufactures Otis elevators
and Carrier air conditioners, but more than half of its $15.28
billion in second-quarter revenue came from its jet-engine and
aerospace divisions. United Technologies sold its Sikorsky
helicopter business to Lockheed Martin Corp. in 2015.
Analysts at William Blair said a takeover of Rockwell Collins
would make "tremendous strategic sense" as it would expand United
Technologies' most profitable business with little overlap. But the
firm thinks a deal is unlikely because United Technologies
management has said it is interested in smaller transactions.
Several analysts said they wouldn't expect significant antitrust
issues with a merger, but airplane makers might voice concerns
about any consolidation among their suppliers. Both companies are
also major Pentagon suppliers.
Nigel Coe, analyst with Morgan Stanley, said the combination has
little overlap in the airplane parts the companies make. Rockwell's
portfolio includes displays, seating and communications, while
United Technology provides electrical systems, wheels and engine
controls.
The deal comes as the aerospace sector is looking at increased
competition from its own customers. Engine makers -- like United
Technologies' Pratt & Whitney division -- typically sell the
huge machines with little or no profit but then make up the money
by selling decades of servicing and parts. But Boeing and Airbus
have been nudging their way into that aftermarket business to
capture some of that profit -- a strategy that puts them on a
collision course with suppliers.
"Further consolidation among aerospace suppliers would be a
natural reaction to the airframers' efforts to shift industry
profitability towards them," Credit Suisse analyst Julian Mitchell
said.
Boeing recently created a new unit to develop and build aircraft
avionics systems, focusing on equipment for future products but
moving deeper into the territory of Rockwell Collins and Honeywell
International Inc.
Meanwhile, Honeywell is reviewing whether to break off its own
aerospace division by autumn, after activist Third Point LLC made a
public push for a spinoff. The division, Honeywell's largest, also
supplies parts for Airbus and Boeing jets along with engines for
aircraft made by Bombardier Inc. and Textron Inc.
Thomas Gryta
contributed to this article.
Write to Dana Mattioli at dana.mattioli@wsj.com and Joann S.
Lublin at joann.lublin@wsj.com
(END) Dow Jones Newswires
August 07, 2017 18:57 ET (22:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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