United Technologies Exploring Goodrich Takeover

By Jeffrey McCracken, Rachel Layne and Serena Saitto - Sep 17, 2011 11:09 AM GMT+0700
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A visitor looks at a United Technologies Corp. Pratt & Whitney PurePower PW1000G engine on display on the third day of the Farnborough International Airshow on July 21, 2010. Photographer: Simon Dawson/Bloomberg

United Technologies Corp. (UTX) is in talks to buy aerospace equipment maker Goodrich Corp. as it looks to expand through a major acquisition, according to three people with knowledge of the matter.

A deal may be announced as soon as next week, said one of the people, who weren’t authorized to speak publicly. Goodrich is the most likely candidate of takeover targets being studied by Hartford, Connecticut-based United Technologies, one person said. Goodrich jumped 23 percent in late trading yesterday, adding to a market value of $11.6 billion.

United Technologies is seeking to raise financing, the people said. Chief Executive Officer Louis Chenevert signaled his interest in acquisitions in March when he named William Brown as senior vice president of corporate strategy. Brown completed more than 40 purchases as head of UTC Fire & Security.

“The fit is not bad,” said Howard Rubel, an analyst with Jefferies & Co. in New York. “From a distribution channel basis, from a mentality basis, from a customer focus basis, it’s all there.”

Talks continue with Charlotte, North Carolina-based Goodrich, and a deal may not be reached, the people said.

John Moran, a spokesman for United Technologies, declined to comment. Goodrich’s Andrew Martin didn’t immediately respond to a voice mail and e-mail request for comment about the takeover talks.

Helicopters, Nacelles

United Technologies’ aviation businesses include Hamilton Sundstrand aerospace electric systems, helicopter maker Sikorsky Aircraft and Pratt & Whitney, a producer of jet engines. Goodrich is the world’s biggest manufacturer of landing gear, and its products include nacelles, the casings that house jet engines, and de-icing systems used on planes.

Goodrich rose to $113.89 in late trading yesterday from a close of $92.89 in New York Stock Exchange composite trading. Rockwell Collins Inc. (COL), Textron Inc. (TXT) and Tyco International Ltd. (TYC) also gained yesterday on speculation they may be targets.

United Technologies fell 11 cents to $75.50 and was little changed after the end of regular trading. The company closed with a market value of $68.6 billion, according to data compiled by Bloomberg.

An acquisition of Goodrich may be valued at more than $17 billion, including $1.9 billion of net debt, based on previous deals in the U.S. aerospace and defense industry. That’s about $122 a share.

Industry Takeovers

Takeovers in the sector greater than $500 million in the last five years have fetched a median of 12.3 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. Goodrich had Ebitda of $1.4 billion in the past 12 months.

Goodrich would be the largest acquisition attempted by United Technologies since 2000, when it sought to buy Honeywell International Inc. (HON) only to be outbid by General Electric Co. (GE) GE’s $45 billion deal was later rebuffed by the European Union.

Chenevert, 54, hasn’t made a large aerospace purchase since becoming CEO in 2008 after running Pratt & Whitney. Adding commercial aerospace revenue would be a boost after the engine unit’s geared turbofan model failed to win placement on Boeing Co. (BA)’s upgraded 737, the world’s most widely flown jetliner.

United Technologies had $5.4 billion in cash and near-cash items at the end of last quarter, and posted sales of $54.3 billion in 2010. Goodrich reported revenue of $6.97 billion last year.

Goodrich History

CEO Marshall Larsen, 63, has led Goodrich since April 2003. He joined the former B.F. Goodrich Co. in 1977 and rose through the ranks, adding the chairmanship six months after taking the top spot.

Benjamin Franklin Goodrich founded the rubber maker bearing his name in 1870. As the company branched into aviation, its innovations included the first pressure suit in 1934 for pilots for high-altitude flight and the first gas turbine fuel injector in 1951 for jet aircraft, according to an online corporate history.

The company exited the tire industry in 1988, and then changed its name to Goodrich Corp. (GR) after selling its specialty chemical business to focus on aerospace and industrial products.

Its largest customers include the U.S. government, Airbus SAS parent European Aeronautic Defence & Space Co. and Boeing, according to data compiled by Bloomberg.

Boosting Production

“When you look at Goodrich and what they do, it’s only 30 percect military or government, and 40 percent-plus aftermarket revenue,” said Sterne Agee & Leach analyst Ben Elias, who told his salesforce yesterday Goodrich was the most likely target. “It’s very good exposure to Airbus as well as Boeing.” He rates United Technologies a “buy.”

Boeing is boosting production by about 50 percent over the next three years, and Airbus is raising its output rates as well as both planemakers work off record order backlogs.

United Technologies’ industrial operations include Otis Elevator and air conditioner maker Carrier. The company’s most recent deal was buying J&T Systems Inc., a provider of building- systems management, on Sept. 1. No terms were disclosed.

The company continued to build its security division last year with the purchase of GE Security for $1.8 billion. It bought Kidde Plc and Chubb Plc in the last decade.

United Technologies paid an average premium of 18 percent in almost 30 deals for which terms were disclosed since 2001, according to data compiled by Bloomberg. The company paid a median multiple of 12 times earnings before interest, taxes, depreciation and amortization in 10 of the deals, the data show.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Rachel Layne in Boston at rlayne@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net

To contact the editors responsible for this story: Jennifer Sondag at jsondag@bloomberg.net; Ed Dufner at edufner@bloomberg.net