United Technologies Weighing Acquisitions in Fire, Aerospace

  • CEO Hayes says `I wouldn't be afraid to do a big deal'
  • Company doesn't need M&A for growth, chief executive says

United Technologies Corp. may make acquisitions to bolster its fire, security or aerospace businesses after rebuffing a $90 billion takeover offer from Honeywell International Inc.

“I wouldn’t be afraid to do a big deal, but it’s got to be something that’s actionable,” Chief Executive Officer Gregory Hayes said Thursday at an investor conference in New York. “Big deals, though, have big risk.”

Hayes used his first public comments since Honeywell ended its pursuit to pitch the long-term value of United Technologies’ businesses, which have been hampered by product-development costs, a slowdown in China’s construction market and persistent strength of the U.S. dollar. Organic growth and boosting shareholder returns through stock repurchases will be the priority until the right buying opportunity comes along, he said.

“We’re well-positioned for long-term growth,” Hayes said. “We don’t need to do M&A for growth.”

Organic sales will grow more than 10 percent a year on average through 2020 in the Pratt & Whitney jet-engine unit and as much as 5 percent in the Otis elevator and climate divisions, United Technologies said. The company isn’t likely to do much dealmaking with Pratt, Hayes said.

Rebuffed Offer

Hayes last month rebuffed the acquisition offer from Honeywell over concerns a deal would face resistance from customers and antitrust regulators. Honeywell, which had been in off-and-on talks with United Technologies for almost a year, said March 1 it would no longer pursue a tie-up.

“The regulatory and the customer obstacles were very real,” Hayes said Thursday. “We felt it was irresponsible to move forward with the combination because of those risks.”

There’s now “heightened pressure” on Hayes to deploy capital to boost shareholder returns and demonstrate the value in a standalone United Technologies, UBS analyst David Strauss said in a March 8 note.

The company said it is increasing investor returns through $22 billion in dividends and repurchases, an effort that started last year and will run until the end of 2017.

United Technologies reaffirmed a forecast for adjusted earnings this year of $6.30 to $6.60 a share on sales of $56 billion to $58 billion. First-quarter earnings will be $1.35 to $1.40 a share, the company said.

United Technologies rose 0.1 percent this year, outpacing a 2.7 percent decline in the Standard & Poor’s 500 Index. The shares plunged 16 percent last year.

Rising Production

Pratt has had issues with the introduction of a new engine model powering narrow-body aircraft. The geared turbofan faced a supply chain disruption and has had cooling problems that marred the debut of Airbus Group SE’s newest A320 plane. Pratt is rolling out hardware and software fixes to address the problems.

Managing a sharp rise in production rates will be critical for Pratt, which has received orders for about 7,000 GTF units. While development costs have been substantial, the engines will become profitable as they age and require maintenance and repair work.

“We think investors are preoccupied with the near-term outlook for GTF losses, largely ignoring the upside of the aftermarket to come,” Strauss said in the note. There is as much as $10 a share in additional value due to the GTF, he said.

Pratt got a boost this week as the U.S. Air Force said it picked the company over competitor General Electric Co. to make engines for the new B-21 bomber.

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