April 9 (Bloomberg) -- Textron Inc. rose the most in at least 28 years after Kuwait’s Al-Watan newspaper reported that a United Arab Emirates group is preparing to buy the maker of Cessna aircraft and Bell helicopters for $21 a share.

Providence, Rhode Island-based Textron surged $4.45, or 49 percent, to $13.56 at 4:15 p.m. in New York Stock Exchange composite trading after earlier gaining 58 percent in the biggest one-day increase since at least July 28, 1980. A deal at $21 would value the company at $5.1 billion based on 242.9 million outstanding shares. After an inquiry from the NYSE, Textron responded that it doesn’t comment on market rumors.

The company’s shares have fallen from a 52-week high of $65.52 on May 30 as the global credit crunch and recession reduced demand for aircraft and raised risks in its finance unit. Textron is exiting financing businesses other than those directly related to its manufacturing units.

“We do think it’s possible the company could be sold,” JPMorgan Chase & Co. analyst Stephen Tusa, who has a “neutral” rating on the stock, said in a note to clients today. He values the manufacturing assets at about $12 a share. “It only takes one high bid to make the market, so we’re not saying it does not happen, but it looks expensive.”

Textron spokeswoman Karen Gordon Quintal declined to comment, citing the company’s policy against discussing “rumor and speculation.”

The Kuwaiti newspaper didn’t identify its sources. The buyers are interested in the civil operations of Textron and will sell its defense operations to an American company involved in the negotiations, Al-Watan said. The report said there was an assumption the agreement would be reached on a U.S. holiday.

Looking for a Fit

“This type of scenario would likely solve one of the key problems in realizing Textron’s full value, namely that Textron has many pieces which would fit well with other companies, but all of Textron does not fit well with any one company,” Citigroup Inc. analyst Jeffrey Sprague wrote in a note to clients. He rates the stock “buy” and values the company at $15 a share in a “worst-case” scenario.

“United Technologies and Boeing would have high interest in Bell, in our view, and Systems could attract numerous defense bidders,” Sprague wrote. The group would also look to liquidate the financial unit, Sprague wrote.

United Technologies spokesman Peter Murphy declined to comment. The Hartford, Connecticut-based maker of Sikorsky helicopters and Pratt & Whitney jet engines has a practice of not commenting on “rumor and speculation,” he said.

Boeing spokesman John Dern also declined to comment.

Dubai Aerospace

Dubai Aerospace Enterprises is not involved in a Textron deal, the company said in an e-mailed response to a query from Bloomberg News.

“I haven’t even heard of Textron,” said Mohamed Badaway Al-Husseiny, chief financial officer of Abu Dhabi’s Aabar Investments PJSC. “We’ve just completed the Daimler deal, we’re not planning anything else soon,” he said, referring to Aabar’s purchase of a 1.95 billion-euro ($2.56 billion) stake in German carmaker Daimler AG.

Mubadala Development Co., the Abu Dhabi government-owned investment company, isn’t planning to buy Textron, Chief Operating Officer Waleed al-Muhairi said.

Through yesterday, Textron shares had climbed about 65 percent since March 30, the day before Textron said it would reduce finance receivables by at least $800 million by the end of the first quarter, ahead of plan, and end the period with more than $1 billion in cash.

2009 Profit

The stock hasn’t closed above $10 since Jan. 28, a day before the shares tumbled the most in two decades after the company said 2009 profit would miss estimates. The company reports first quarter results April 29.

The parent company’s support agreement with Textron Finance requires it to keep a controlling interest in the unit, Gimme Credit analyst Carol Levenson wrote in a note today. Lenders can enforce that agreement, and it remains unclear where the debt would wind up.

“Liquidating a finance company is a lengthy project, and if it could be done any quicker, we’re sure Textron would be doing it,” Levenson wrote. “We understand why the stock market might cheer this rumor, but we question why it would be a positive for bondholders without knowing more details.”

Textron’s $350 million of 5.6 percent notes due in 2017 jumped 11 cents to 73 cents on the dollar, the highest since Dec. 18, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 10.4 percent.

Credit-Default Swaps

Textron Financial credit-default swaps fell 6.3 percentage points to 9 percent upfront, according to CMA DataVision. That’s in addition to 5 percent a year, meaning it would cost $670,000 initially and $900,000 annually for five years to protect $10 million. Textron credit-default swaps fell 6.7 percentage points to 7 percent upfront in addition to 5 percent a year, according to CMA.

“Textron is the proverbial takeover candidate,” said Jon Kutler, chief executive officer of Los Angeles-based Admiralty Partners, a private equity investor in aerospace and defense with $70 million in invested capital. “I’ve been through two decades of rumors on Textron so I’ll believe it when I see it.”

Kutler used to run the largest defense-focused merger-and- acquisition firm, Quarterdeck Investment Partners, before he sold it in 2002 to Jefferies, when it became Jefferies Quarterdeck.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net

Last Updated: April 9, 2009 17:17 EDT