Rockwell To Be Acquired By United Technologies

Based on the current pro forma basis United Technologies (UTC) will pay an estimated eight billion US dollars to acquire the aircraft avionics business of Rockwell Collins. The definitive agreement was made using UTC stock and $140.00 per share, in cash. With a equity value of $23 billion in the deal and a transaction value of $30 billion, one could do the math and see $7b difference of new debt.Part of the acquisition strategy of United Technologies is issue debt instruments

 

for a portion of the the cash settlement.  This means the new company will need to service the new debt.  A down turn in the Areospace industry could mean hard times for the new and improved United Technologies.

The typical mergers and acquisition rational of creating more customer value, and more shareholder value, will depend on how well the companies integrate  Products Lines, Research and Development, Manufacturing, Sales, Support and more importantly corporate cultures. The company line is, the two companies have the same culture of teamwork, mutual trust, accountability and respect. Yet the cost take outs associated with an acquisition are counter culture.  Teams are disrupted, trust between employer and and employee is broken under the guise of “restructuring”, accountability goes to the last person let go.

Although the UTC CEO, Greg Hayes, spoke of new opportunities for the employees of United Technologies there are storm clouds on the horizon for some of the employees of both companies as the deal has an estimated $500 million in pretax cost synergies on a run rate basis.  This means United Technologies can cut approximately $500m in run rate expenses, the largest usually being the salaries of employees.

The impact of this acquisition will reach beyond the two principles. The acquisition will give United Technologies more bargaining power with it’s customers.  Customer such as Boeing which historically purchased from Rockwell Collins will now find it more challenging at the negotiation table.

Cautionary Statement
This article is the opinion of the author and contains statements which, to the extent they are not statements of historical or present fact,are intended to provide the authors opinion.