A swift corporate courtship culminated Monday in Rockwell Collins Inc. agreeing to be sold to United Technologies Corp. for $23 billion in cash and stock — one of the largest deals in aerospace industry history.
Industry and analyst speculation surfaced about a potential megadeal Aug. 5. With United, based in Farmington, Conn., agreeing to take over $7 billion in Rockwell debt, the total value of the purchase is $30 billion.
The deal, which requires regulatory and shareholder approval, is projected to close in the third quarter of 2018.
Rockwell, based in Cedar Rapids, Iowa, completed its $8.6 billion purchase of B/E Aerospace Inc. on April 13. Rockwell has more than 1,600 employees at the Winston-Salem operational hub it gained from the B/E deal.
Rockwell and UTC Aerospace Systems would be integrated to create a new business unit, Collins Aerospace Systems.
Kelly Ortberg, chairman, chief executive and president of Rockwell, will serve as Collins Aerospace’s chief executive, while Dave Gitlin would be president and chief operating officer.
The news release did not have specific information about Rockwell’s local operations, and Rockwell officials referred to the news release when asked.
“We are extremely pleased to announce this compelling transaction with UTC, which is a testament to the value we have created for Rockwell Collins’ employees, customers and shareowners,” Ortberg said in the statement.
“The combination will enable us to compete more effectively for future business through continued investments in innovation, world-class integrated product offerings and the ability to retain the top talent in the industry.”
Gayle Anderson, president and chief executive of Winston-Salem Chamber of Commerce, said Monday she will reach out to United officials “so they can see firsthand why our community is an ideal location for them to continue to grow.”
“Our talented workforce, low cost of doing business and high quality of life enable us to offer them many advantages.”
David Plyler, chairman of Forsyth County Board of Commissioners, said Monday he is optimistic about the combined strength of United and Rockwell.
“The efficiencies outlined (in the news release) point to a stronger corporation,” Plyler said. “It’s good news for Forsyth County and shareholders.”
United’s market capitalization of $94.19 billion is more than 4½ times that of Rockwell’s $21.22 billion.
Bloomberg News reported that when Greg Hayes took over as United’s chief executive in 2014, he pledged to consider major moves, including deals potentially worth more than $20 billion.
United buying Rockwell would bring together the largest and fourth-largest suppliers of aircraft parts with little product and operational overlap. Top competitors include Honeywell International Inc. and France’s Safran SA.
United generates about half its sales from aviation through its Pratt & Whitney and aerospace divisions. The company also makes Otis elevators and Carrier air conditioners.
Rockwell, with the purchase of B/E, specializes in avionics and aircraft interiors.
“This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems,” Hayes said in a statement.
“Together, Rockwell Collins and UTC Aerospace Systems will enhance customer value in a rapidly evolving aerospace industry by making aircraft more intelligent and more connected.”
Hayes said, as Ortberg did when Rockwell bought B/E, that the merger “will also create new opportunities for the talented employees of both companies to advance innovation in a growing and dynamic industry.”
United agreed to pay $140 a share for Rockwell, valued at $93.33 in cash and $46.67 in United common stock. United said it plans to pay for the acquisition through cash on hand and debt.
Rockwell’s share price was $119 on Aug. 2, the last trading day before news broke of the potential deal. The share price closed Friday at $130.61.
Investors are expected to send the share price toward the $140 market in early trading today.
United projects the combination will be accretive to adjusted earnings per share after the first full year following closing.
On pro-forma 2017 basis, the combined company is expected to have global sales of $67 billion to $68 billion when adding Rockwell’s projected $8 billion.
However, since the purchase talk surfaced, there has been some analyst speculation that United could sell off some of its legacy operations to help pay for the megadeal.
For example, TheStreet.com reported Monday that activist hedge fund managers have been prodding United to sell some of its non-core businesses.
“It is very possible that the private activist agitations may have pushed Hayes to try to buy the cockpit gear maker, in part, because he doesn’t want to bow to pressure from an activist seeking to push the company into spin-offs,” TheStreet.com said.
A similar push by activists led B/E Aerospace Inc. to split the $10 billion company and spin off KLX Inc. in December 2014. KLX is focused on distribution, logistics and technical services for the aerospace and energy services markets.
The spinoff of KLX operations made B/E small enough for Rockwell to consider purchasing.
“Once we have completed the integration of Rockwell Collins and made progress toward reducing leverage back to historical levels, we will have an opportunity to explore a full range of strategic options for UTC,” Hayes said.
“We have demonstrated we can successfully integrate large acquisitions into our business, and I have full confidence that the team has the capability to do it again.”
UTC reaffirmed Monday its expectations for fiscal 2017 sales of $58.5 billion to $59.5 billion and adjusted earnings in the range of $6.45 to $6.60 per share.
CFRA Research analyst Jim Corridore said on Aug. 5 that a United-Rockwell combination made sense.
“We think it would increase the share of content within most commercial and many military aircraft, and would help to increase (United’s) share of revenue from aerospace,” Corridore said.
At that time, he raised his share-price target for Rockwell from $130 to $140 with the speculation.
Jim Cramer, founder of TheStreet.com, said Aug. 5 that the deal “would make plenty of sense that I think they would have to do it.”
Cramer said a United-Rockwell combination could take away economic leverage from Boeing.
“It puts tension on Boeing because (right now) Boeing can play off everybody,” Cramer said.
“But if you own the landing gear, the brains (avionics), the seating, you can be a player and you can say to Boeing we’re not part of your partners’ plan to be able to make you more money.
“You’re going to make us more money,” Cramer said.