What Torpedoed UTC-Honeywell Merger? The Feds or Ego?

honeywell

Honeywell chief executive Dave Cote

2/23/16

By Robert Wright, New York
The Financial Times

Honeywell has insisted that regulatory obstacles need not prevent it from merging with United Technologies, in a spirited riposte that suggests it remains committed to pursuing the potential $90bn transaction.

Honeywell made its first official comments on the possible deal in a statement after Tuesday’s close of trading in New York, more than 24 hours after news broke of the talks between the two companies.

It was responding to UTC’s insistence in a statement on Monday evening and in a television appearance on Tuesday by Greg Hayes, UTC’s chief executive, that regulators would so clearly block the transaction that it was not worth pursuing.

A merged Honeywell-UTC would have annual sales of more than $100bn a year. Honeywell’s offer, worth about $108 a share, would value UTC at about $90bn.

The merged company would have a powerful position as a supplier of components to aerospace companies, particularly builders of commercial passenger aircraft and business jets. UTC has said that opposition from manufacturers such as Boeing and Airbus would doom the deal.

Honeywell confirmed that it had “engaged in discussions” with UTC over the past year over a “possible business combination”. It did not see the “regulatory process” as a “material obstacle to a transaction”, it said.

“The value creation from a combination is significant, including the benefits of $3.5bn in annualised cost synergies,” it added, in the first estimate from either company of a deal’s potential financial benefits.

“In fact, a combination would benefit our customers and enhance our ability to offer a more comprehensive and compelling suite of technologies to serve their needs,” the company said.

Honeywell laid out no clear plans for pursuing a transaction in spite of UTC management’s resistance. But it said it would not pursue a transaction that was not in the best interests of shareholders.

“Regardless of whether a transaction occurs, we are highly confident in our long-term growth prospects, our ability to create shareowner value, and our strong investment grade balance sheet,” the company said.

At the heart of the dispute between the two companies are two different versions of why the talks over a potential transaction had broken down. UTC insists that it rebuffed Honeywell because of the regulatory concerns. People familiar with the matter on Honeywell’s side say that the sticking point was “social” — whether Honeywell’s or UTC’s executives would run a merged company.

UTC had no immediate response to Honeywell’s statement.

Dave Cote, Honeywell’s chief executive, appears determined, according to people involved, to secure a transaction that would cement his legacy at Honeywell, whose share price has risen nearly 90 per cent over the past five years. UTC’s shares, by contrast, are up only about 13 per cent over the same period.

UTC’s shares, which slipped 0.8 per cent to $91.60 during normal trading on news of its reluctance to consider a deal, were unchanged in after-market trading. Shares in Honeywell were down 0.9 per cent in normal trading at $103.64 and were also unchanged in after-market trading.

Original article found here.

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