By Jeremy Lemer in New York
United Technologies has agreed to buy Goodrich, a maker of aircraft components, for about $16.5bn in cash in a move that boosts the industrial conglomerate’s exposure to the fast growing aerospace sector.
The deal is the biggest acquisition that UTC has made since Louis Chenevert took over as chief executive in 2008 and bulks up the company’s already substantial position in the aerospace sector.
UTC owns Sikorsky, the helicopter maker; Pratt & Whitney, the engine company; and Hamilton Sundstrand, a component supplier, but in recent years a series of deals in the fire and security segment has increased the group’s exposure to commercial and residential construction.
Analysts said the deal would push UTC’s aerospace revenues back to more than half of its total sales and would help revitalise its portfolio just as the sector begins a sustained production ramp-up. The company will have combined revenues of about $66bn in 2011.
Goodrich, based in Charlotte, North Carolina, makes landing gear, aircraft interiors, electronic sensors and other components for the commercial aerospace and defence sectors. It had revenues of about $7bn in 2010.
UTC said on Wednesday night that it would pay $127.50 a share in cash for Goodrich. The price represents a steep premium over the stock price before rumours of the deal first leaked and is towards the upper end of most analysts’ predictions.
UTC will also assume about $1.9bn of debt, giving Goodrich an enterprise value of about $18.4bn or just over 9 times its forecast 2012 earnings before interest, tax depreciation and amortisation, according to Credit Suisse.
With the deal, UTC gains a company that is the leading or second largest business in each of its markets. Goodrich has also reported faster revenue growth, higher margins and quicker profit growth than UTC over the past five years.
To finance the deal, UTC will tap about $15bn of loan capacity provided by a group led by JPMorgan and that includes HSBC and Bank of America Merrill Lynch. UTC will also raise about $4bn in new stock and halt share buy-backs to maintain its credit rating.
Investors have broadly welcomed the deal. Despite its large size and the potential dilution from the issuance of new stock, UTC’s share price has climbed about 11 per cent over the past month, handily outperforming the S&P 500 index.
In a statement, Mr Chenevert said: “Goodrich is a great business with a solid product portfolio and significant after-market sales that complement UTC’s existing aerospace presence.”
JPMorgan, Goldman Sachs and Wachtell, Lipton, Rosen & Katz advised UTC while Credit Suisse, Citigroup and Jones Day advised Goodrich.
? The Financial Times Limited 2011