With Collins Merger Ahead, UTC Eyes Future of Portfolio

 - July 25, 2018, 11:40 AM

United Technologies Corp. (UTC) remains on pace for completion of its $30 billion acquisition of Rockwell Collins in the third quarter, UTC chairman and CEO Gregory Hayes confirmed yesterday. At the same time, Hayes, speaking to analysts during the second quarter earnings call, addressed questions about a potential breakup of UTC or divestiture of certain of its current product lines, saying the company continues to evaluate the future of its portfolio and a decision should be made in the fourth quarter.

The company is on track with regulatory approvals for the Rockwell Collins merger, he said, adding, “We believe we are down to the final stages of the process.”

Announced late last summer, the merger received European Commission approval on May 4 with the condition that the combined entity divests overlapping businesses in the areas of actuators, pilot controls, ice protection, and oxygen systems.

“We are clearly excited about the future and what Rockwell brings to the UTC portfolio,” Hayes said. “Collins Aerospace will give us differentiated products and services that are more intelligent and more connected than ever before and allow us to enhance customer value in the aerospace industry.”

The combination would bring together two aerospace giants. UTC's larger portfolio covers power generation, propulsion systems, and landing systems, while Rockwell Collins serves as a major supplier of avionics and cabin interior products. Hayes reiterated anticipations that the merger should net $500 million in cost synergies.

As far as the future of UTC, he was asked about past statements regarding the potential for splitting the company into three parts. Hayes, however, stressed that UTC is looking at all options. The company is evaluating what is going to create the most value long-term, he said. “It's not just about splitting the company up three ways.”

Other options could create value, he said, “be it acquisitions or be it divestitures as part of this strategic portfolio review.”

He pointed to Sikorsky, which initially was going to be spun off but ultimately ended up getting acquired by Lockheed Martin. “We 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.”

Hayes further addressed ramifications of the bankruptcy of Nordam’s U.S. divisions and the decision to halt production of nacelles for variants of the Pratt & Whitney PW800 powering Gulfstream’s G500 and G600 as those ultra-long-range business jets prepare to come to market.

“We're continuing to work closely with the bankruptcy court, with the lenders, and with the folks at Nordam, to try and find a solution here,” he said. In the short-term, Hayes did not see any “bottlenecks” or shortages “that would say that we can't meet the contractual commitments that we have.”

He reiterated that the company has worked closely with Nordam over the past six months and said he believes this will result in a “not easily managed, but at least a good outcome here in the not-too-distant future.”