By David Benoit, Dana Mattioli and Thomas Gryta
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 5, 2017).
Industrial conglomerate United Technologies Corp. reached a deal
to buy airplane-parts maker Rockwell Collins Inc. for $23 billion,
in the biggest aerospace deal in history.
Both companies' boards have approved a deal in which United
Technologies will pay $140 a share in cash and stock, the companies
said late Monday. Rockwell investors will get $93.33 a share in
cash and the remaining $46.67 in United Technologies stock.
The price is an 18% premium to where Rockwell traded before word
of a potential deal first surfaced early last month, and 30% above
where the stock ended July.
The deal would be the biggest aerospace deal ever, followed by
United Technologies' 2012 acquisition of Goodrich Corp. for about
$16.5 billion, according to Dealogic.
It promises to reshape the market for aerospace parts and could
be a harbinger of a breakup of United Technologies in the years
following integration, according to people familiar with the
company's plans.
Rockwell is expected to give United Technologies a larger
presence, and more leverage, in its business supplying Boeing Co.
and Airbus SE as the aerospace industry ramps up for a new
generation of jets. Those new jet plans are likely to be worth
decades of business for the component makers such as United
Technologies and Rockwell.
Farmington, Conn.-based United Technologies already owns one of
the world's biggest jet-engine makers, Pratt & Whitney, and an
aerospace division that also makes parts such as wheels and landing
gear.
Rockwell specializes in cockpit displays and communications
systems for passenger jets and the military. In April, the Cedar
Rapids, Iowa, company closed its roughly $6 billion acquisition of
B/E Aerospace Inc., a maker of plane seats and interiors.
United Technologies Chief Executive Greg Hayes will remain as
CEO of the combined company, and Rockwell chief Kelly Ortberg will
run a new business known as Collins Aerospace that will combine the
parts businesses, the companies said.
The increased focus on aerospace for United Technologies could
trigger further portfolio changes, the people said. The company
also makes Carrier air conditioners and Otis elevators and is open
to reviewing whether to break up in the coming years after the
company pares its debt levels and squeezes out some $500 million in
expected cost savings, the people said. There isn't a decision on
whether any split will happen, they cautioned.
The cost savings are expected to come from eliminating the
expenses of being a public company for Rockwell and duplicative
sales expenses, but aren't expected to mean significant workforce
cuts, the people said.
Mr. Hayes has proven willing to make large changes in the past.
He took over as CEO in November 2014 and by July 2015 had reached a
deal to sell the company's Sikorsky helicopter division.
Several Wall Street analysts have said the deal makes more sense
if it provides a path to splintering the conglomerate.
Last year, United Technologies' aerospace and jet-engine
businesses had about $29.4 billion in revenue, while its other
businesses brought in about $28.7 billion. Rockwell Collins had
sales of about $5.3 billion in the fiscal year ended in September.
B/E Aerospace added another $2.9 billion.
As reports of the merger talks became public, financial analysts
have said they don't expect significant antitrust issues, given
that United Technologies and Rockwell make different airplane
parts.
Aside from regulators, the companies may have to sell the deal
to their customers, where there has been tension already.
Pratt & Whitney has struggled with production and the
reliability of its new geared-turbofan jet engine that powers
Airbus A320neo single-aisle planes. Airbus plane deliveries this
year are running behind because of a dearth of engines.
Regarding a potential Rockwell deal, an Airbus spokesman
recently said the airplane maker hoped "that any potential M&A
would not distract [United Technologies] from their top operational
priority."
United Technologies officials have said they expect the problems
to be resolved this year and were expecting to meet engine delivery
commitments.
While United Technologies has long eyed Rockwell, talks first
began between the CEOs in May, according to some of the people
familiar with the matter. While the companies don't see major
hurdles to closing the deal, they don't expect the airplane makers
to be happy with the combination and plan to start making their
case for why it would be beneficial starting Tuesday, the people
said.
Boeing and Airbus have also been nudging their way into the
aftermarket business to capture some of the profit from selling and
servicing parts -- putting them on a collision course with
suppliers such as United Technologies.
United Technologies' Mr. Hayes has warned that such intrusions
could disrupt the business model for jet engines and lead to high
prices for equipment if aftermarket services are no longer
guaranteed.
After trying to buy United Technologies last year, Honeywell
International Inc. is reviewing whether to break off its aerospace
division, the rival industrial giant's largest. Activist Third
Point LLC has made a public push for a spinoff.
In Europe, engine maker and Pratt & Whitney rival
Rolls-Royce Holdings PLC has activist ValueAct Capital Management
LP on its board.
Tim Mahoney, president and CEO of Honeywell Aerospace, said last
month that a combination of United Technologies and Rockwell
Collins would "change the competitive landscape."
--Robert Wall contributed to this article.
Write to David Benoit at david.benoit@wsj.com, Dana Mattioli at
dana.mattioli@wsj.com and Thomas Gryta at thomas.gryta@wsj.com
(END) Dow Jones Newswires
September 05, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Rockwell Collins (NYSE:COL)
Historical Stock Chart
From Jun 2024 to Jul 2024
Rockwell Collins (NYSE:COL)
Historical Stock Chart
From Jul 2023 to Jul 2024