Honeywell and United Technologies adopt differing stances over potential merger

United Technologies, the US industrial conglomerate has rejected an offer of US$90.70 billion made by rival aerospace supplier, Honeywell International. Were the merger successful, the company would have combined sales of around US$100 billion per annum. While United declared that pursuing the offer would be “irresponsible” towards its shareholders, Boeing were quick to state that there was a need for “healthy competition” in its supply chain.
United made it clear that a merger had been a topic of discussion between the two companies for years, but the change in the regulatory environment would now mean a merger would likely be blocked outright, or any perceived benefits would be outweighed by regulatory delays and concessions.
As part of the Dow Jones industrial average, United shares closed at US$97.69, a figure well below Honeywell’s offer of US$108.00 per share. Honeywell’s shares closed at US$103.03, a drop of 1.1%. United Tech is the parent company of Otis elevators, Carrier air conditioners, and Pratt & Whitney jet engines, while Honeywell manufactures thermostats, auto turbochargers, and airplane cockpit electronics. Crossover areas between the two companies include small aircraft engines and airplane power units, as well as wheels and brakes.
It is anticipated that Honeywell would have to offload a good number of assets and also increase its offer before United would be likely to show interest in the deal. However, Greg Hayes, United’s CEO, said on CNBC television that “It just cannot happen. There is just no way it could be done.” According to United, any merger would either be blocked outright or would require divestiture of considerable assets, thus destroying shareholder value. Honeywell, on the other hand, was far more optimistic, indicating that regulatory issues could be “easily resolved”.
While Boeing sees the merger as an opportunity to strengthening negotiating power while saving a combined US$3.5 billion per annum, United were more skeptical, confirming that the company’s revenue could fall by between US$5 billion and US$10 billion. A merger would create a giant of company responsible for supplying much of the equipment found on commercial airliners like Boeing and Airbus, as well as the Pentagon.
A merger between the two companies would also produce a combined revenue generation of 28% from sales from commercial aerospace customers, and 13% from both the defense and space sectors.