By Stephen Singer, Contact Reporter
A willingness by United Technologies Corp. to review “all options” as it considers breaking apart its sprawling business portfolio should cheer investors, two analysts said.
Greg Hayes, chief executive officer, told investor analysts that UTC will “look for ways to maximize value long-term, whether that’s together as the entire UTC portfolio or apart.”
“I think all options are on the table,” he said.
Cowen analyst Cai von Rumohr said Hayes’ comment is a “welcome clarification.”
Previous comments focused on splitting UTC into three units: aerospace, Otis elevator and UTC Climate, Controls & Security.
“A three-way split would increase operational focus but would be a costly, time-consuming process, relinquishing scale pluses with few benefits of new customer access or merger and acquisition opportunities,” von Rumohr said.
Nicholas Heymann of William Blair & Co. wrote in a client note that Hayes’ comments breathed new life into arguments that breaking up UTC will be a boon to shareholders.
“To us, the … ‘all options’ comments likely rejuvenated hope that potential alternative possibilities might now be under consideration that could perhaps more successfully unlock shareholder value,” he said.
“Until yesterday, unlocking shareholder value by spinning out one or more of UTC’s commercial businesses seemed to be increasingly viewed as a less compelling means to create material shareholder value,” Heymann said.
The sale of Otis elevator might be under consideration following a report by Reuters that Thyssenkrupp, a German conglomerate, and Kone, a Finnish company, have discussed a potential merger of their companies’ elevator businesses, he said.
UTC might not stop at unloading Otis if a European deal comes together, Heymann said.
“If this were pursued, the sale of UTC’s Fire & Security business … might also be considered,” he wrote.
A UTC spokeswoman would not comment, deferring to Hayes’ discussion with analysts. Hayes has promised to announce a decision by the end of the year.
The prospect of UTC reducing debt by rapidly selling assets contributed to the nearly 4 percent jump in UTC’s share price Tuesday, Heymann said.
Shares closed up a fraction of 1 percent Wednesday to $134.75.
UTC is set to close before the end of September on its $30 billion acquisition of aerospace manufacturer Rockwell Collins Inc. Following its $18 billion purchase in 2012 of Goodrich Corp., another aerospace manufacturer, UTC will be among the world’s largest aerospace manufacturers, supplying engines, cockpit components, landing gear and other parts and equipment to airline manufacturers.
Investors, particularly activist investors who have recently bought stakes in UTC, question whether shareholders are getting maximum value from UTC as it bulks up on aerospace while operating its other businesses, such as Otis, Carrier heating and cooling and building securities equipment.
Otis elevator is a marquee business of UTC, accounting for nearly 21 percent of UTC’s 2017 revenue of $59.8 billion. But it’s been under pressure in its biggest market, China, which has slowed high-rise construction. In the second quarter, sales were down 6 percent in China. It’s also squeezed by rising commodity prices.
And it was the only UTC business to post a drop in operating profit, down 9.5 percent, to $488 million, in the second quarter. Hayes told analysts that improvements in elevator repair and maintenance service will boost profit margins in the future.
Original article can be found here.