What happens when a mega company acquires another mega company? United Technologies Corp. (NYSE: UTX) ("UTC") and Rockwell Collins, Inc. (NYSE: COL) ("Rockwell Collins") announced they have reached a definitive agreement under which United Technologies will acquire Rockwell Collins for $140.00 per share, in cash and UTC stock.
Rockwell Collins is a major player in aviation and high-integrity solutions for commercial and military customers and is recognized for its avionics, flight controls, aircraft interior and data connectivity solutions. On a 2017 pro forma basis, its estimated sales are greater than $8 billion.
UTC Chairman and Chief Executive Officer Greg Hayes said that this acquisition adds tremendous capabilities to their aerospace businesses and strengthens their complementary offerings of technologically advanced aerospace systems, and that together, Rockwell Collins and UTC Aerospace Systems will enhance customer value in a rapidly evolving aerospace industry by making aircraft more intelligent and more connected.
Hayes continued that the integrated companies' expertise in developing electrical, mechanical and software solutions will allow them to deliver more innovative products and services and provide greater value to their customers and share owners, and this combination will also create new opportunities for the talented employees of both companies to advance innovation in a growing and dynamic industry. Importantly, UTC and Rockwell Collins share cultures of mutual trust and respect, accountability and teamwork that will allow them to work together to achieve their common goals.
Kelly Ortberg, Chairman, President and Chief Executive Officer of Rockwell Collins stated that they are extremely pleased to announce this compelling transaction with UTC which is a testament to the value they have created for Rockwell Collins' employees, customers and share owners, and the combination will enable them to compete more effectively for future business through continued investments in innovation, world-class integrated product offerings and the ability to retain the top talent in the industry. They look forward to the next chapter in Rockwell Collins' long and proud history, as part of UTC.
Under the terms of the agreement, each Rockwell Collins shareowner will receive $93.33 per share in cash and $46.67 in shares of UTC common stock, subject to a 7.5 percent collar centered on UTC's August 22, 2017 closing share price of $115.69. UTC expects to fund the cash portion of the transaction consideration through debt issuances and cash on hand, and the company is committed to taking actions to maintain strong investment grade credit ratings. The transaction is projected to close by the third quarter of 2018, subject to approval by Rockwell Collins' shareowners, as well as other customary closing conditions, including the receipt of required regulatory approvals.
The purchase price implies a total equity value of $23 billion and a total transaction value of $30 billion, including Rockwell Collins' net debt.
On a pro-forma 2017 basis, UTC is expected to have global sales of approximately $67 to $68 billion following the transaction, based on estimated results.
UTC expects the combination will be accretive to adjusted earnings per share after the first full year following closing and generate an estimated $500+ million of run-rate pre-tax cost synergies by year four.
Upon completion of the transaction, Rockwell Collins and UTC Aerospace Systems will be integrated to create a new business unit named Collins Aerospace Systems. Kelly Ortbergwill assume the role of Chief Executive Officer with Dave Gitlin serving as President and Chief Operating Officer.
Hayes said that they have demonstrated they can successfully integrate large acquisitions into their business and he has full confidence that the team has the capability to do it again, and that once they have completed the integration of Rockwell Collins and made progress towards reducing leverage back to historical levels, they will have an opportunity to explore a full range of strategic options for UTC.
UTC today also reaffirmed its expectations for 2017 sales of approximately $58.5 to $59.5 billion and adjusted earnings in the range of $6.45 to $6.60 per share.*
*Note: When UTC provides an expectation for adjusted EPS on a forward-looking basis, a reconciliation of the difference between the non-GAAP expectation and the corresponding GAAP measure generally is not available without unreasonable effort. See more about "Use and Definitions of Non-GAAP Financial Measures"
