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Strategies & Market Trends : Speculating in Takeover Targets
CTG 8.260-1.7%Jan 19 2:35 PM EST

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To: richardred who wrote (2869)9/17/2011 12:17:53 AM
From: richardred  Read Replies (1) of 6147
 
UPDATE 7-UTX seeks $10-20 bln, Goodrich may be target

United Tech, which has a market value of about $68 billion, is still working on terms of an offer and any potential bid could still fall apart, said the people with direct knowledge of the situation. They asked not to be identified as the plans are confidential.

Such a deal would be United Tech's largest takeover since its unsuccessful bid for Honeywell International Inc ( HON.N) in 2000. Since then, its largest acquisitions have been in the $1 billion to $3 billion range as it built up its fire and security division.

United Tech shareholders took the news in stride. Its shares edged 0.1 percent lower to close at $75.50 on a day the blue-chip Dow Jones industrial average .DJI, of which United Tech is a component, rose 0.7 percent.

BIGGER BET?

For most of the past five years, United Tech has budgeted $1.5 billion to $2 billion per year for takeovers, regularly making deals that are small enough that the Hartford, Connecticut-based company does not disclose their size.

Company officials have repeatedly said they are interested in more deals, and in July Chief Financial Officer Greg Hayes suggested United Tech would not shy away from larger targets.

"You're going to see us put our balance sheet to work, you're going to see us put more cash to work on the M&A side," Hayes said. "That's where I think a big piece of growth is going to come from in the next few years; it's going to come from the M&A."

United Tech officials have expressed particular interest in targets to merge into its Fire and Security and Hamilton Sundstrand security and aircraft components arms. Both divisions are below Chief Executive Louis Chenevert's $10 billion annual revenue target.

Acquiring either Goodrich or Rockwell, which are big suppliers to United Tech, could help the company weather the expected downturn in defense spending in the United States and Europe by giving it a larger share of the smaller pie that will remain, according to industry executives.

U.S. congressional leaders last month agreed to cut $350 billion from national security spending over the next decade.

For some veterans of the industry, the decline in defense spending brings to mind the late 1980s and early 1990s, when top U.S. defense officials told companies they should consider joining forces to cut costs.

"This definitely feels like a return to those times," said one industry executive. "There are a lot of second-tier companies that will very likely be absorbed."

Being acquired by a conglomerate like United Tech could allow the target company to retain some independence. United Tech has five divisions that operate under their own brand names, including Pratt & Whitney and Hamilton Sundstrand.

RELUCTANT TO GO HOSTILE?

Brian Langenberg, who follows United Tech at Langenberg & Co, said he would trust them to do a large-scale acquisition, even if it meant taking on substantial debt.

"You don't get that many swings at something that size. It's a disciplined company," Langenberg said. "I've never seen them do something that doesn't make sense."

As of July, the world's largest maker of elevators and air conditioners had done just $184 million in acquisitions this year and had $5.4 billion in cash on hand.

"UTX is well capitalized, corporate debt rates are near historical lows and the recent market sell-off has potentially made purchase prices a little more attractive," wrote RBC Capital Markets analyst Robert Stallard in a note to clients.

Chenevert, who came up through the company's aerospace business and headed Pratt & Whitney before taking the top job, holds up his $1.8 billion acquisition of General Electric Co's ( GE.N) security business as the ideal deal.

In 2008, United Tech made a hostile $2.64 billion takeover offer for Diebold Inc ( DBD.N), a maker of automated teller machines. That effort was ultimately fruitless, and Chenevert has since said he would be reluctant to go hostile again. (Reporting by Nadia Damouni, Soyoung Kim and Michael Erman in New York, Philipp Halstrick in Frankfurt and Andrea Shalal-Esa in Washington, writing by Scott Malone in Boston; editing by John Wallace, Tiffany Wu, Tim Dobbyn and

reuters.com
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