Stocks tumbled Tuesday on concerns over tensions with North Korea and fears that Hurricane Irma could hit Florida and the U.S. Southeast. The Dow Jones Industrial Average (DJINDICES: ^DJI) fell more than 230 points and the S&P 500 (SNPINDEX: ^GSPC) was down over 1% at one point, though it recovered somewhat during the afternoon.
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Gold rose sharply as investors fled to safety. The SPDR Gold Shares ETF (NYSEMKT: GLD) gained 1.1%.
Among the significant news items for individual stocks, United Technologies (NYSE: UTX) announced it is buying Rockwell Collins (NYSE: COL), and H.B. Fuller Company (NYSE: FUL) added another adhesive company to its portfolio.
United Technologies and Rockwell Collins create aerospace powerhouse
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United Technologies announced on Monday an agreement to purchase Rockwell Collins in a $30 billion deal that will create a giant supplier to the aerospace industry. The buyer will pay $23 billion in cash and United Technologies stock, and assume $7 billion in Rockwell Collins debt in order to create an aerospace systems business that the company expects to generate $8.4 billion in revenue in 2017. United Technologies stock fell 5.7% on the news, while Rockwell Collins rose 0.2%.
The combination will create a business unit that will extend United Technologies' offerings from its Pratt and Whitney jet engine unit and UTC Aerospace Systems division with complementary products in avionics, navigation, integrated flight decks, and aircraft interior offerings from Rockwell Collins. The company expects the acquisition to be accretive to adjusted earnings per share in the first full year after the deal closes, but maintained previous guidance for 2017 EPS. Annual cost savings of $500 million are expected to materialize within four years after the merger.
"This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems," said UTC Chairman and CEO Greg Hayes in the press release.
The market appeared unimpressed by the deal, which gives the company increased scale but potentially raises issues with its aircraft customers, who could become concerned about consolidation among suppliers. Further, the high price of the purchase will put some financial strains on United Technologies, which announced it will suspend previously announced share buybacks for three to four years and issue $14 billion of new debt.
Rockwell Collins stock closed 6.5% below the deal price of $140 per share, perhaps indicating that investors were unsure whether the deal will pass regulatory hurdles.
H.B. Fuller bonds with another adhesive vendor
Shares of adhesives maker H.B. Fuller jumped 2.4% on the news it is acquiring privately held Royal Adhesives & Sealants in a $1.575 billion cash deal.
Royal is a top-10, pure-play adhesives and sealant company that specializes in adhesives for durable assembly, construction products, and engineering applications that Fuller expects will produce $650 million in revenue and $120 million in free cash flow in 2017. The addition of Royal to Fuller's $2.2 billion product portfolio will create a shift toward higher-value, higher-margin products, and improve the company's cash flow generation, according to management.
"This accretive acquisition accelerates realization of our 2020 strategic objective to focus and grow in engineering adhesives and other highly specified market segments, while exceeding our targeted cash flow, EPS and EBITDA margin targets," said CEO Jim Owens in the press release.
The move was well received by the market. Management projects the combined company to produce $1 billion in free cash flow in the first three years which is a considerable improvement on the $196 million Fuller generated in 2016. This deal follows the smaller acquisitions of Brazilian adhesives company Adecol in July and Wisdom Worldwide Adhesives in January .
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