With its $30-billion acquisition of aviation giant Rockwell Collins a done deal, Farmington, Conn.-based United Technologies Corp. said yesterday it would break up into three independent companies by 2020.
United Technologies, which includes Collins Aerospace Systems and Pratt & Whitney, will supply the aerospace and defense industry. Otis will provide elevators, escalators and moving walkways to buildings around the world, and Carrier will heat, cool and keep them safe.
“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,” says UTC chairman and CEO Gregory Hayes in the news release announcing the deal. “Our products make modern life possible for billions of people.”
And the breakup of the growing conglomerate will make billions of dollars of profits possible for select investors, at least in the eyes of Dan Loeb, who seems to be everywhere there’ s a pie to be sliced this week.
“The three-way split caps a dramatic overhaul of United Technologies under Hayes, who negotiated the blockbuster Rockwell Collins acquisition last year and closed the deal this week. Two activist investors, Bill Ackman of Pershing Square Capital Management and Dan Loeb of Third Point, took stakes in United Technologies and pushed for a breakup. Loeb said a three-way split would unlock $20 billion in shareholder value,” Bloomberg’s Molly Kissler and Natasha Rausch report.
Not that it’s an entirely novel idea.
“The move is in line with plans of other major industrial companies, such as DowDuPont, Honeywell International and General Electric, to shed major divisions, as investors assign more value to the parts of these companies separately than to their sum,” point out Reuters’ Ankit Ajmera and Greg Roumeliotis.
“The newly created Collins Aerospace will have 70,000 workers at 300 sites worldwide. Annual sales are expected to be $23 billion,” Stephen Singer writes for the Hartford Courant. “With the Rockwell Collins deal, UTC is now a manufacturer of cockpit and cabin equipment and avionics that gather and interpret flight data. The Farmington company is capitalizing on rising airline passenger travel in Europe, North America, China and India,” he adds.
“Formed in 1934, United Technologies spent decades getting bigger and broader in reach, and for the most part making a lot of shareholders richer along the way. But in recent years, the company ‘struggled to make the conglomerate model produce the same kind of financial outcomes. Separating allows them to focus on what each business needs to do to be successful on its own,’” Melius Research analyst Carter Copeland tells the New York Times’ Natalie Kitroeff.
“After all, Mr. Copeland said, producing airplane engines requires a different strategy than making air-conditioners. The aerospace business operates on decade-long timelines, while cooling equipment requires a shorter-term outlook,” Kitroeff adds.
The company “expanded beyond its aerospace roots in the 1970s by acquiring Otis Elevator Co., which pioneered the elevator business [in Yonkers, N.Y. in 1853], and Carrier Engineering Co., a large manufacturer of heating and air conditioning systems,” Dana Mattioli and Thomas Gryta write for the Wall Street Journal.
“The company got embroiled in national politics in 2016 after then-presidential candidate Donald Trump criticized its decision to close a Carrier factory in Indiana and move production to Mexico. After Indiana offered financial incentives, Mr. Hayes agreed to keep some of the jobs at the factory,” they remind us.
In January, however, the company laid off about 215 people, leaving about 1,100 workers at the plant. There had been about 1,600 factory, office and engineering jobs there when Carrier first said it would move production to Mexico in 2016, as the AP’s Tom Davies reported for the Chicago Tribune.
And, as the headline above the New York Times’ Nelson D. Schwartz’ story told us in August, “morale is through the floor” at the plant. “Twenty months after the president-elect reached a deal to keep blue-collar jobs from leaving the country, absenteeism plagues the Indiana plant,” the subhed continues. Bottom line: despite high demand for Carrier’s products, “employees share a looming sense that a factory shutdown is inevitable -- that Carrier has merely postponed the closing until a more politically opportune moment.”
We’ll see what Dan Loeb has to say about that.