|One of the few times I've seen a a near term rumor to be true.|
United Technologies Buys Goodrich for $16.4
By Rachel Layne, Jeffrey McCracken and Zachary Mider - Sep 22, 2011 9:20 AM ET
United Technologies, whose aviation brands include Sikorsky helicopters and Pratt & Whitney engines, is making its first big purchase since buying Sundstrand Corp. in 1999 for $4 billion.
United Technologies, whose aviation brands include Sikorsky helicopters and Pratt & Whitney engines, is making its first big purchase since buying Sundstrand Corp. in 1999 for $4 billion. Photographer: Fabrice Dimier/Bloomberg
United Technologies Corp. (UTX) agreed to buy Goodrich Corp. (GR) for $16.5 billion, adding a maker of aircraft landing gear and jet-turbine casings to take advantage of a record surge in commercial plane orders.
The deal’s enterprise value is $18.4 billion, including $1.9 billion in net debt, the companies said yesterday. Goodrich stockholders will get $127.50 a share as Hartford, Connecticut- based United Technologies finances about 25 percent of the purchase with equity and the rest with new debt.
The acquisition caps a years-long pursuit by United Technologies, whose aviation brands include Pratt & Whitney jet engines. Chief Executive Officer Louis Chenevert plans to fold his Hamilton Sundstrand aviation equipment and Goodrich into UTC Aerospace Systems, based in Goodrich’s hometown of Charlotte, North Carolina, and led by its CEO, Marshall Larsen.
“The strategic rationale for acquiring Goodrich is that it adds complementary, high value-add products into the United Technologies mix,” said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York.
Share repurchases will be suspended in 2012 and reduced as much as 50 percent in 2013 and 2014, executives said on a conference call with analysts and investors.
United Technologies’ bid represents a premium of 47 percent to Goodrich’s closing share price on Sept. 15, the day before talks were reported. Excluding Goodrich, the conglomerate has paid an average premium of 18 percent in almost 30 deals for which terms were disclosed since 2001, according to data compiled by Bloomberg. The premiums are calculated using a 20- day average.
Without net debt, the price represents a multiple of 11.8 times earnings before interest, taxes, depreciation and amortization, or Ebitda, trailing the median of 12.3 times for aerospace takeovers greater than $500 million in the last five years, according to data compiled by Bloomberg.
Chenevert’s acquisition marks one of the industry’s largest deals and the first big aerospace purchase for United Technologies since the 1999 takeover of Sundstrand Corp. for $4 billion. It’s also the first major purchase by Chenevert, 54, who rose to become CEO in 2008 after running Pratt & Whitney jet engines.
Goodrich closed at $86.48 on Sept. 15 in New York Stock Exchange composite trading. The shares closed yesterday at $109.49, and surged to $120.60 at 8:59 a.m. before the start of regular trading.
United Technologies slid 1.5 percent yesterday to $74.87, less than its closing price of $75.61 on Sept. 15. The shares declined to $71.25 in pre-market trading.
Based on 2011 estimates, the purchase adds sales of about $8 billion a year, boosting revenue to $66 billion for United Technologies, which also makes Sikorsky helicopters and Otis elevators. Goodrich is the world’s largest maker of aircraft landing gear and its lineup includes nacelles, the casings that house jet engines, and de-icing systems used on planes.
“The transaction may cause other suppliers to consider their strategic options,” Howard Rubel, a Jefferies & Co. analyst in New York, wrote in a note to clients today. “For the moment, we do not anticipate further combinations of similar scale. However, it would not surprise us if moderately sized companies find cause to combine to support or enhance their product lines.”
Jeffrey Sprague, co-founder of Vertical Research Partners, estimated profit growth of 25 cents a share in 2012 and 72 cents in 2015 before the deal was announced. He based the projections on an offer of $125 a share.
United Technologies signaled its interest in a new approach to acquisitions in March, when Chenevert promotedWilliam Brown to lead deals and growth initiatives. Brown previously headed UTC Fire & Security, a role in which he completed more than 40 acquisitions.
The most recent courtship of Goodrich began in December, said a person with knowledge of the talks. Only in the last few days did it become clear that the approach was likely to lead to a deal, the person said.
United Technologies executives had just one day -- Sept. 20 -- with full access to Goodrich’s books, this person said. That night, after the review was complete, Chenevert confirmed he was still committed to the $127.50-a-share price at a dinner with Larsen at the St. Regis Hotel in New York, the person said. Chenevert and his predecessor, George David, have often used the site for delicate negotiations and investor meetings.
“You always ask me about M&A and when are we going to do a deal,” Chenevert said today on a conference call with analysts and investors. “I’ve always answered that we’ve a disciplined approach to M&A. It has to be strategic to the core. It has to be in growth market. There is going to be the ability to apply the UTC model and exercise the synergies and it’s also got to be the right value. Goodrich perfectly fits these criteria.”
Brown’s move into the acquisitions role followed what analysts said were rare missteps by United Technologies, including an approach to automatic teller maker Diebold Inc. in February 2008. That offer was rescinded in October of the same year after the Canton, Ohio-based company spurned requests for due diligence.
Since Chenevert took the CEO post from David on April 9,2008, shares climbed 6.8 percent through Sept. 15, outperforming an 11 percent decline in the broader Standard & Poor’s 500 Index.
Goodrich reported sales of $6.97 billion last year, compared with $54.3 billion for United Technologies. Chenevert’s three aerospace businesses -- Pratt, Sikorsky and Hamilton Sundstrand -- made up $22.23 billion of that total.
Adding commercial aerospace revenue would be a boost for United Technologies after Pratt’s geared turbofan engine failed to win placement on Boeing Co. (BA)’s upgraded 737, the world’s most widely flown jetliner. The engine, which Chenevert spent more than $1 billion and a decade developing, is a choice on Airbus SAS’s upgraded A320neo family, a 737 rival.
JPMorgan Chase & Co. and Goldman Sachs Group Inc. are financial advisers for United Technologies while Wachtell, Lipton, Rosen & Katz are providing legal counsel. Credit Suisse Group AG and Citigroup Inc. are providing financial advice to Goodrich and Jones Day is legal counsel.