United Technologies CEO Eyes Exit After Rockwell IntegrationBy
Hayes wants to ensure maximum benefits from deal are realized
Timeline would potentially slide if company pursues a breakup
United Technologies Corp.’s boss has begun laying the groundwork for an exit in a few years, after seeing through the company’s blockbuster $23 billion union with Rockwell Collins Inc.
Chief Executive Officer Greg Hayes said he has told the board he expects to step down in about three to five years. The 57-year-old executive wants to complete the integration of Rockwell Collins and would also oversee a potential United Technologies breakup, a move the company promised to explore later this year.
“If you stay around too long, you disenfranchise the next generation of leadership,” Hayes said in an interview at United Technologies’ new building-technology center in Palm Beach Gardens, Florida. “We have some good, solid leaders out there, the next generation coming up. My time will come and I’ll go off and do something else.”
The CEO’s remaining tenure, which he hasn’t previously discussed publicly, sheds light on the management succession path as United Technologies weighs a dramatic transformation. The comments also signify at least a few more years of consistent leadership at the maker of jet engines and elevators at a time when many of its industrial peers have undergone CEO turnover.
In a subsequent statement Monday, the company said the CEO’s remarks were “misinterpreted.”
“In a wide-ranging interview with Bloomberg, Greg Hayes, Chairman and CEO of UTC, was asked a hypothetical question about his potential tenure in his current role,” the company said in the statement. “His remarks were misinterpreted as having provided a definitive timeline for his retirement. To be clear, Mr. Hayes intends to continue to remain focused on executing UTC’s priorities for years to come.”
According to a recording of the March 16 interview, Hayes said: “I’ve been very up front with the board, I said, ‘Look, I will be here three to five years, and not much beyond that.’”
When he goes, Hayes will hand over a dramatically different company than the one he took over in late 2014. He’s reinvigorated the Farmington, Connecticut-based manufacturer by investing in new products and digital technology across its business lines of aerospace and building systems. Hayes, who also serves as chairman, has been an aggressive dealmaker as well, shedding the long-held Sikorsky helicopter unit and agreeing to buy Rockwell Collins.
Yet shares have lagged the broader market for most of Hayes’s run as the company contended with a slowing construction market in China and spent heavily to introduce a new jet engine. United Technologies fell less than 1 percent to $127.20 at the close in New York. The shares have fallen 0.3 percent this year, trailing the 1.5 percent advance in the S&P 500 Index.
General Electric Co., Honeywell International Inc. and Johnson Controls International Plc each have installed new top executives in the past year. This month, 3M Co. said CEO Inge Thulin would step aside in mid-2018.
Hayes, who joined United Technologies in 1999 and served as finance chief for six years, was thrust into the CEO’s chair after the abrupt resignation of Louis Chenevert. From the start, the new leader made clear his desire to make a splash with a big acquisition, a goal he achieved in late 2017 with the purchase of Rockwell Collins, one of the biggest aerospace deals ever.
The transaction is on track to close in the next few months, Hayes said. He wants to stick around long enough to ensure that the integration of Rockwell is successful, including getting “all the synergies recognized.” The process is likely to take about three years, he said.
United Technologies anticipates more than $500 million of cost savings through the Rockwell tie-up as it capitalizes on lessons learned from its 2012 acquisition of Goodrich Corp. Hayes helped glean more than $600 million in cost synergies -- 50 percent higher than initial estimates -- from the Goodrich integration.
The CEO surprised investors last month when he said United Technologies would study whether a breakup would enhance shareholder value. While the company said it will consider all options, one outcome could be a three-way split creating independent aerospace, elevator and climate-control businesses.
Chief Financial Officer Akhil Johri said the timing of the announcement was driven mainly by the U.S. tax overhaul, which will allow the company to repatriate $3.5 billion of overseas cash.
United Technologies now expects to use less debt in the Rockwell deal and have a lower cost for that debt, reducing the financial burden of the transaction. That would allow it to tackle the “significant” one-time costs that would come with a breakup, which Hayes estimates could be $2 billion to $3 billion.
Both Hayes and Johri said the decision to explore a breakup was made internally and wasn’t driven by an activist shareholder. Bill Ackman’s Pershing Square Capital Management is building a stake in United Technologies, CNBC and Bloomberg reported last month, while there’s also been speculation of interest from another unidentified activist investor.
Hayes said he’s wary of investors looking to make a quick buck on United Technologies because that may be incompatible with the company’s focus on long-cycle businesses. Still, he sees the stock as undervalued at current prices and said he’ll consider options to bring it up to a more appropriate level.
“There’s certainly value to be unlocked,” Hayes said. “If an activist wants to come into the stock and they’ve got some ideas, we’ll listen.”