Rockwell Considers Takeover Approach -- WSJ

Aerospace suppliers haggle over price of a takeover expected to surpass $20 billion

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 (August 8, 2017).

United Technologies Corp. has made an approach to acquire Rockwell Collins Inc., but the two aerospace suppliers are still wrangling over the price of a takeover that would exceed $20 billion, said people familiar with the matter.

United Technologies recently made an initial offer of less than $140 a share, according to a person familiar with the matter. The two sides are still in discussions and it is unclear whether the talks will result in an agreement, the people said.

The timing of the discussions is unusual as they come just a few months after Rockwell Collins closed on its $6.4 billion purchase of B/E Aerospace. United Tech executives have said recently that they are looking for potential acquisitions, but suggested they would focus on smaller deals.

Rockwell Collins had a $19.4 billion market value as of Friday's close. The company's share price rose 6.8% to $127.07 on Monday, after earlier reports of the discussions. Shares of United Technologies fell 2.4% to $118.52.

A deal would increase United Technologies' role as a significant supplier to Boeing Co. and Airbus SE as the aerospace industry boosts production for a new generation of jets. The company already owns one of the world's biggest jet-engine makers, Pratt & Whitney, and an aerospace division that makes parts such as wheels and landing gears.

Rockwell specializes in cockpit displays and communications systems for passenger jets and military programs. In April, the Cedar Rapids, Iowa, company closed its acquisition of B/E Aerospace, a maker of plane seats and interiors. The deal added almost $3 billion in annual sales to a company with $5.3 billion in revenue.

In June, United Technologies Chief Executive Greg Hayes told analysts the company, which had about $7 billion in cash, was looking to spend roughly $1 billion on acquisitions this year.

"As far as bigger M&A, it's something we always look at, but I am reluctant to go out and pay some of the prices that we see today," Mr. Hayes said at the Paris Air Show.

The Farmington, Conn., company also manufactures Otis elevators and Carrier air conditioners, but more than half of its $15.28 billion in second-quarter revenue came from its jet-engine and aerospace divisions. United Technologies sold its Sikorsky helicopter business to Lockheed Martin Corp. in 2015.

Analysts at William Blair said a takeover of Rockwell Collins would make "tremendous strategic sense" as it would expand United Technologies' most profitable business with little overlap. But the firm thinks a deal is unlikely because United Technologies management has said it is interested in smaller transactions.

Several analysts said they wouldn't expect significant antitrust issues with a merger, but airplane makers might voice concerns about any consolidation among their suppliers. Both companies are also major Pentagon suppliers.

Nigel Coe, analyst with Morgan Stanley, said the combination has little overlap in the airplane parts the companies make. Rockwell's portfolio includes displays, seating and communications, while United Technology provides electrical systems, wheels and engine controls.

The deal comes as the aerospace sector is looking at increased competition from its own customers. Engine makers -- like United Technologies' Pratt & Whitney division -- typically sell the huge machines with little or no profit but then make up the money by selling decades of servicing and parts. But Boeing and Airbus have been nudging their way into that aftermarket business to capture some of that profit -- a strategy that puts them on a collision course with suppliers.

"Further consolidation among aerospace suppliers would be a natural reaction to the airframers' efforts to shift industry profitability towards them," Credit Suisse analyst Julian Mitchell said.

Boeing recently created a new unit to develop and build aircraft avionics systems, focusing on equipment for future products but moving deeper into the territory of Rockwell Collins and Honeywell International Inc.

Meanwhile, Honeywell is reviewing whether to break off its own aerospace division by autumn, after activist Third Point LLC made a public push for a spinoff. The division, Honeywell's largest, also supplies parts for Airbus and Boeing jets along with engines for aircraft made by Bombardier Inc. and Textron Inc.

Thomas Gryta

contributed to this article.

Write to Dana Mattioli at dana.mattioli@wsj.com and Joann S. Lublin at joann.lublin@wsj.com

(END) Dow Jones Newswires

August 08, 2017 02:47 ET (06:47 GMT)