United Technologies Completes Acquisition of Rockwell Collins United Technologies Completes Acquisition of Rockwell Collins

United Technologies Completes Acquisition of Rockwell Collins

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  • Announces Intention to Separate Into Three Independent Companies

Farmington, Connecticut. 15 December 2018.  United Technologies Corp. recently  announced the completion of its acquisition of Rockwell Collins  and the company’s intention to separate its commercial businesses, Otis and Carrier (formerly CCS), into independent entities. The separation will result in three global, industry-leading companies:

United Technologies, comprised of Collins Aerospace Systems and Pratt & Whitney, will be the preeminent systems supplier to the aerospace and defense industry; Collins Aerospace was formed through the combination of UTC Aerospace Systems and Rockwell Collins.

Otis, the world’s leading manufacturer of elevators, escalators and moving walkways and Carrier, a global provider of HVAC, refrigeration, building automation, fire safety and security products with leadership positions across its portfolio.

“Our decision to separate United Technologies is a pivotal moment in our history and will best position each independent company to drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation,” said United Technologies Chairman and Chief Executive Officer Gregory Hayes. “Our products make modern life possible for billions of people.  I’m confident that each company will continue our proud history of performance, excellence and innovation while building an even brighter future.  As standalone companies, United Technologies, Otis and Carrier will be ready to solve our customers’ biggest challenges, provide rewarding career opportunities, and contribute positively to communities around the world.”

The proposed separation is expected to be effected through spin-offs of Otis and Carrier that will be tax-free for UTC shareowners for U.S. federal income tax purposes.  Each spin-off is subject to the satisfaction of customary conditions, including final approval by UTC’s Board of Directors, receipt of a tax opinion from counsel, the filing and effectiveness of a Form 10 registration statement with the U.S. Securities and Exchange Commission and satisfactory completion of financing. Gregory Hayes will oversee the transition and will continue in his current role as UTC Chairman and CEO following the separation.

The three independent companies will be appropriately capitalized with the financial flexibility to take advantage of future growth opportunities.  Each business will be better positioned to pursue a capital allocation strategy more suitable to its respective industry and risk and return profile, and enjoy greater flexibility with an independent equity currency and more appropriately aligned management and employee incentives.  UTC’s commitment to strengthening its credit metrics remains unchanged.  Each independent company is expected to have a strong balance sheet and to maintain an investment grade credit rating.  Any existing or potential liabilities that are not associated with a particular entity will be allocated appropriately to each of the businesses.

Following separation, the three companies together are initially expected to pay a quarterly dividend that is in sum no less than 73.5 cents per share, although each company’s dividend policy will be determined by its respective Board of Directors following the completion of the separation.  Until the planned transactions are completed, UTC expects to continue to pay a quarterly dividend of no less than 73.5 cents per share.

One-time transaction costs are expected to include non-U.S. tax expense, debt financing, operational separation activities and other customary items. The separation is expected to be completed in 2020, with separation activities occurring within the next 18-24 months.  There can be no assurances regarding the ultimate timing of the separation or that the separation will be completed.

UTC’s acquisition of Rockwell Collins is one of the largest in aerospace history.  It brings together Rockwell Collins and UTC Aerospace Systems to create Collins Aerospace Systems, an industry leader with a global presence of 70,000 employees in 300 sites and $23 billion in annual sales on a 2017 pro forma basis. United Technologies expects the deal to be accretive to adjusted earnings per share in 2019 and to generate more than $500 million in run-rate pre-tax cost synergies by year four.

“Collins Aerospace brings together two great companies with unmatched expertise in developing electrical, mechanical and software solutions,” said Hayes.  “We will have a laser focus on developing innovative solutions for customers and generating strong returns for shareowners.”

UTC updates its 2018 outlook to include the acquisition of Rockwell Collins and now anticipates:Sales of $64.5 to $65.0 billion, up from $64.0 to $64.5 billion;

Adjusted EPS dilution of approximately $0.10 from the acquisition, resulting in adjusted EPS of $7.10 to $7.20, down from $7.20 to $7.30*;

Free cash flow of $4.25 to $4.5 billion, down from $4.5 to $5.0 billion*;

All outlook changes are related to the acquisition of Rockwell Collins. There is no change in the Company’s previously provided 2018 expectations for organic sales growth of approximately 6 percent.*

For 2019, UTC anticipates the acquisition to be $0.15 to $0.20 accretive to adjusted EPS, including the estimated impact of approximately $650 million of incremental intangible amortization associated with the transaction.  UTC also expects $500 to $750 million of accretion to free cash flow in 2019 from Rockwell Collins. The weighted average diluted shares outstanding for 2019 is expected to be approximately 872 million shares.

Evercore and Goldman Sachs & Co. are acting as financial advisors and Wachtell, Lipton, Rosen & Katz is serving as legal advisor to United Technologies.

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