United Tech in Takeover Talks With Rockwell Collins -- Update

By Dana Mattioli and Joann S. LublinFeaturesDow Jones Newswires

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, according to people familiar with the matter.

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

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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 recently said they are looking for potential acquisitions, but suggested they would focus on smaller transactions.

Rockwell Collins had a $19.4 billion market value as of Friday's close. The company's share price gained 3% to $122.71 in afternoon trading Monday, following earlier reports of the discussions. Shares of United Technologies slipped 2%.

A deal would increase United Technologies' role as a major supplier to Boeing Co. and Airbus SE as the industry boosts production for a new generation of jets. The company already owns one of the world's biggest jet engine makers, Pratt & Whitney, as well 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 big maker of plane seats and interiors. The deal added almost $3 billion in annual sales to a company with about $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 around $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 expands United Technologies' most profitable business with little overlap. But the firm thinks a deal is unlikely because UTC management has said it is interested in smaller deals.

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

Credit Suisse analyst Julian Mitchell said the timing is curious for a deal because United Technologies waited for Rockwell Collins's acquisition of BE Aerospace in April to close and the subsequent 20% increase in its stock price.

Last month, Mr. Hayes warned that the company may need to raise prices for its jet engines and aerospace parts, if airplane makers like Boeing and Airbus try to steal some of its lucrative maintenance business. Jet engine makers typically sell the engines with little or no profit but then make up the money by selling decades of servicing and parts.

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 the fall 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 07, 2017 13:25 ET (17:25 GMT)