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Otis (OTIS) to Buy Remaining 49.99% Share in Zardoya Otis

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Otis Worldwide Corporation (OTIS - Free Report) , through its wholly-owned subsidiary Opal Spanish Holdings, S.A.U., has announced its intention of acquiring the remaining 49.99% share of Zardoya Otis, S.A. An offer price of EUR7.00 in cash represents a premium of 28.9% to Zardoya Otis’ one-month volume weighted average price. This implies a total equity value for Zardoya Otis, including Otis' existing interest, of EUR3.3 billion.

The transaction aims to delist Zardoya Otis from the Madrid, Barcelona, Bilbao and Valencia Stock exchanges. The transaction is expected to close in second-quarter 2022, subject to the Spanish Securities Exchange Commission approval.

Judy Marks, Otis' president and chief executive officer, said, "Zardoya Otis has been an integral part of Otis since 1972 and its products, services and geographic footprint are critical components of our long-term growth strategy."

Post acquisition, Otis will streamline its corporate structure and generate operational efficiencies for both businesses. Otis expects Zardoya Otis to contribute 3-5 cents to 2022 earnings, depending upon the timing of the transaction’s closure and the pace of the acquisition of shares. Also, it is likely to contribute up to mid-single-digit 2023 adjusted earnings growth. Meanwhile, there is likely to be no significant change to Otis’ employment as it is already the majority holder of Zardoya Otis and has operational control.

Otis has been strategically expanding its business reach to international markets through joint ventures and non-wholly owned subsidiaries. In Spain, it conducts operations through Zardoya Otis. Zardoya Otis manufactures, installs, and services elevators and elevator equipment as well as exports elevator equipment for installation by certain other subsidiaries outside the country.

Also, it operates in China through two joint ventures namely, Otis Elevator (China) Investment Company Limited (“Otis China”) and Otis Electric Elevator Company Limited (“Otis Electric”). Established in 1998, Otis China manufactures, installs and services elevators, escalators as well as related equipment. Otis Electric — a subsidiary of Otis China — was established in 1997 for the purpose of manufacturing, installing, and servicing elevators, escalators as well as related equipment.

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The company’s shares have rallied 28% compared with the industry’s 11.3% growth in the year-to-date period. The solid price appreciation was mainly driven by an impressive first-half performance. The uptrend is mainly backed by solid organic sales in both New Equipment and Service segments, higher operating margins along with a lower effective tax rate. The company expects these factors to support earnings growth in the forthcoming quarters.

Zacks Rank & Other Key Picks

Otis currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other top-ranked stocks in the same space include Armstrong World Industries, Inc. (AWI - Free Report) , Owens Corning (OC - Free Report) and TopBuild Corp. (BLD - Free Report) . While Armstrong World sports a Zacks #1 Rank, Owens Corning and TopBuild carry a Zacks Rank #2. All the three companies’ earnings are likely to increase 16.3%, 68.1% and 47.1%, respectively, in 2021.