Oct. 27 (Bloomberg) -- United Technologies Corp. has emerged as the frontrunner in the bidding for General Electric Co.’s fire alarm and surveillance systems unit, said a person familiar with the matter.

GE put the unit up for sale earlier this year and is still talking to more than one bidder, said the person, who didn’t want to be named because talks are private. United Technologies, the maker of Otis elevators and Carrier air conditioners, would get more dealers and new customers from the purchase.

A deal would bolster United Technologies Chief Executive Officer Louis Chenevert’s strategy of offering service contracts for equipment and systems in commercial buildings, locking revenue streams over years. The unit, which has equipment from fire alarms to access-control systems, may be valued at about $2 billion, people with knowledge of the talks said in August.

“It would make sense for people to include United Technologies on the short list of acquirers now,” said Deane Dray, a New York analyst at FBR Capital Markets who rates United Technologies “market perform.” The company has remained “very disciplined in all the metrics of what they’re willing to pay for assets.”

Jeffrey DeMarrais, a spokesman for Fairfield, Connecticut- based GE, declined to comment on “marketplace speculation,” as did Peter Murphy, a spokesman for Hartford, Connecticut-based United Technologies.

Share Prices

GE fell 8 cents to $14.93 at 4:15 p.m. in New York Stock Exchange composite trading, while United Technologies declined 74 cents, or 1.1 percent, to $64.09. The shares of United Technologies, which also makes Sikorsky helicopters and Pratt & Whitney jet engines, have climbed 20 percent this year. GE, the world’s biggest maker of jet engines and medical imaging equipment, has declined 7.8 percent.

United Technologies built its Fire & Security unit earlier this decade with purchases of the Kidde fire and Chubb security brands. Last year, Chenevert promoted Ari Bousbib to oversee Otis, Carrier and UTC Fire & Security, which contribute about 60 percent of total company sales. The company has kept promises to raise margins and integrate, Dray said.

“They’ve delivered very, very nicely on their promises to raise operating margins at Fire & Security and do it in the time they said they could,” Dray said.

While United Technologies still intends to spend the $2 billion earmarked this year for acquisitions, “the timing of deals is difficult to predict,” Chief Financial Officer Greg Hayes said on a call with investors last week.

‘M&A Pipeline’

The company has spent about $560 million on acquisitions so far this year. Chenevert said in June he “wouldn’t be surprised” by a big acquisition this year.

“We continue to have a number of good core opportunities in the pipeline,” Hayes said last week. “I feel better about the M&A pipeline than I have in a long time.”

GE, which doesn’t break out earnings for the division, last year predicted the security unit would have about $3 billion in sales by 2011, up from more than $1.8 billion in 2007.

The company built the security unit via acquisition, including the $1.4 billion purchase of fire prevention equipment maker Edwards Systems Technology from SPX Corp. in 2005. GE agreed to sell an 81 percent stake in a part of its security division, the Homeland Protection unit that sells technology for airports, to Paris-based Safran SA for $580 million in April.

United Technologies has walked away from deals in the past, including an effort to buy Honeywell International Inc. in 2000. GE offered more for Honeywell than United Technologies, which didn’t raise its own offer. The GE-Honeywell transaction was eventually blocked by the European Union.

United Technologies also withdrew an unsolicited bid for North Canton, Ohio-based Diebold Inc., the maker of automated bank teller machines. The bid was pulled in October 2008 after Diebold’s board spurned requests for due diligence and management discussions.

To contact the reporters on this story: Rachel Layne in Boston at rlayne@bloomberg.net; Zachary R. Mider in New York at zmider1@bloomberg.net.

Last Updated: October 27, 2009 16:47 EDT