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Carlyle, BC Get United Tech Division for $3.46 Billion

United Technologies Corp. (UTX) agreed to sell its Hamilton Sundstrand industrial unit to Carlyle Group LP (CG) and BC Partners for $3.46 billion as the company raises cash to pay for aerospace supplier Goodrich Corp. (GR)

The transaction will be financed with equity from the firms and third-party debt from a group of banks, London-based BC Partners and Carlyle Group said yesterday in a statement. The deal with Hartford, Connecticut-based United Technologies is expected to close in the fourth quarter, the companies said.

Chief Executive Officer Louis Chenevert is now a step closer to completing his fundraising for the $16.5 billion Goodrich purchase announced last year. He will have an opportunity to discuss the move on a conference call with analysts after today’s second-quarter earnings release.

“That’s an attractive sale for United Technologies,” Richard Whittington, a Drexel Hamilton LLC analyst in New York, said in an interview. “It will go a way to helping them balance the debt that they had to take on.”

United Technologies raised $9.8 billion in May in the largest U.S. corporate bond offering in more than three years to help pay for Goodrich, an acquisition that will let Chenevert add the biggest maker of aircraft landing gear to brands that include Pratt & Whitney jet engines and Sikorsky helicopters.

Executives identified Hamilton Sundstrand Industrial in March as one of the assets on the block to help pay for Goodrich, and United Technologies said then that the sale, along with the Rocketdyne and Clipper Windpower divisions, might bring $3 billion of Goodrich’s price.

Three Businesses

Hamilton Sundstrand Industrial consists of three businesses: Sundyne, a maker of high-speed pumps and compressors used in oil and gas applications and chemical/industrial infrastructure; pump-maker Milton Roy; and Sullair, which produces compressors used to power air-driven industrial equipment and tools.

“While these are strong, profitable companies with solid customers and continued promising outlooks, they are not part of UTC’s core of aerospace and building systems,” Chenevert said in a statement. Raymond Svider, co-chairman of BC Partners, called Hamilton Sundstrand Industrial a “a world-class platform.”

The unit’s order backlog was $5.4 billion at the end of 2011, of which $2.8 billion would be realized as sales in 2012, United Technologies said in its annual filing to the U.S. Securities and Exchange Commission on Feb. 9.

‘Big Nugget’

Whittington, who rates United Technologies as a buy, said Hamilton Sundstrand Industrial was “the big nugget” of Chenevert’s planned asset sales.

Along with United Technologies’ bond offering, “this should easily satisfy Wall Street concerns that they would be able to adequately capitalize the new enterprise,” Whittington said.

Rocketdyne, whose boosters propelled the first American into Earth orbit and the first moon landing, was sold on July 23 to GenCorp Inc. (GY) for $550 million.

United Technologies rose 0.9 percent to $72.61 at the close yesterday in New York, leaving the shares down 0.7 percent this year. The stock has slumped 4.5 percent since Sept. 20, a day before the Goodrich purchase was announced, trailing an 11 percent gain for the Standard & Poor’s 500 Index.

Carlyle, BC

Carlyle, the Washington-based firm that oversees more than $159 billion, will make the Hamilton Sundstrand Industrial investment from its fifth flagship buyout fund, Carlyle Partners V. The fund began investing in 2007 with $13.7 billion and had a net internal rate of return of 10 percent as of March 31, according to Carlyle. Its other investments include BankUnited Inc., HD Supply Inc. and Syniverse Technologies Ltd.

BC Partners, which owns companies including gym operator Fitness First Ltd. and casino operator Regency Entertainment SA, said it has 12.6 billion euros ($15.3 billion) of advised funds.

It has been involved in two of the year’s largest leveraged buyouts. Last week, BC Partners and Canada Pension Plan Investment Board agreed to buy U.S. cable operator Suddenlink Communications for $1.99 billion. The deal had an enterprise value of $6.6 billion, lower only than Apollo Global Management LLC’s buyout of El Paso Corp.’s oil and natural gas exploration business for $7.15 billion, announced in February.

Citigroup Inc. (C) and RBC Capital Markets LLC served as financial advisers to BC Partners and Carlyle on the Hamilton Sundstrand Industrial transaction, and Latham & Watkins served as legal adviser, according to the companies’ statement.

To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Thomas Black in Dallas at tblack@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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