$4.3 Billion Aerospace Merger
United Technologies Corp. said Monday it will acquire aerospace parts supplier Sundstrand Corp. for about $4.3 billion, split between cash and stock.
Sundstrand soared 9 3/16 to 67 3/16, while United Technologies fell 2 5/16 to 123 1/8 in trading Monday morning.
Under the agreement, each share of Sundstrand will be converted into the right to receive $35 in cash plus 0.279 shares of United Technologies stock. Based on UTC's closing price Feb. 19 of 125 7/16, that represents $35 in stock. The combined cash and stock offer represents a 20 percent premium over Sundstrand's (SNS) close price of 58 1/2.
Depending on changes in United Technologies (UTX) stock, the value of the deal could be increased as much as $4.25 a share to a maximum price of $74.25, the company said. Both boards have approved the deal.
United Technologies said the acquisition should add "slightly" to earnings per share in 1999, but will boost its bottom line at an increasingly faster pace in later years. The company stands by earlier estimates that earnings per share will grow by 15 percent in 1999.
The deal, the latest in a rapidly consolidating industry, broadens United Technologies' reach into the aerospace business. The company, through its Pratt & Whitney subsidiary, already is a leading maker of jet engines and other aircraft parts.
"This acquisition reinforces our long stated strategy of augmenting UTC's world class aerospace and commercial franchises. Hamilton Sundstrand will have expanded aftermarket opportunities, improved economies of scale, and leveraged opportunities for top line growth," said George David, UTC chief executive.
After the merger, Rockville, Ill.-based Sundstrand will be folded into UTC's Hamilton Standard division, which could result in cost reductions of $90 million to $150 million within three years, United Technology said. The new entity will be named Hamilton Sundstrand.
Robert Jenkins, Sundstrand's chairman and chief executive, will become Hamilton Sundstrand's chairman.
"With the rapidly changing nature of our industry," Jenkins said, "we firmly believe that United Technologies is an excellent strategic fit for Sundstrand as we will benefit from its lean manufacturing, quality, shared services, and purchasing programs and we have a highly similar culture and operating philosophy."
More than half of Sundstrand's business comes from sales of aerospace products, including electrical and power systems. The company also makes industrial goods such as pumps.
United Technologies, historically a diverse supplier of industrial products, has increasingly been moving to expand into the aviation business. Aside from jet engines, it also manufactures helicopters.
The manufacturer also provides a broad range of equipment for buildings (elevators, air conditioners) and autos, but is looking to sell its auto unit. Money from the sale of the auto business, which could fetch up to $3 billion, lkely will be used to pay for a portion of the Sundstrand acquisition.
Written By Jeffry Bartash