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United Technologies' Rockwell Collins Buyout Gets China's Nod

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United Technologies Corporation (UTX - Free Report) on Nov 23 announced that it received a green signal for its proposed acquisition of Rockwell Collins, Inc. , from the State Administration for Market Regulation of China. Rockwell Collins specializes in providing solutions to military and commercial aviation customers.

This conglomerate stated that it was the last regulatory approval needed to close this September 2017 buyout deal. Completion of the buyout is now predicted to be within three working days.

The go-ahead to the deal seems to have lifted market sentiments for United Technologies. The company’s share price increased 2.7%, closing the trading session at $129.04 on Nov 23.

Details of the Deal

The deal between United Technologies and Rockwell Collins was signed on September 4, according to which United Technologies will acquire Rockwell Collins for $140 per share. Total transaction value (inclusive of net debts of Rockwell Collins) was estimated at $30 billion.

Of the $140 per share deal value, $93.33 per share payment will be made in cash and will likely be funded through United Technologies’ available cash and debt borrowings. The rest $46.67 per share disbursement will be made through issuances of shares of United Technologies to Rockwell Collins shareholders.

The Rockwell Collins buyout will be advantageous to United Technologies, further strengthening the mechanical, electrical and software capabilities of UTC Aerospace Systems. After the closing of the deal, the combined businesses of UTC Aerospace Systems and Rockwell Collins will form a new unit — Collins Aerospace Systems.

Putting the benefits of the Rockwell Collins buyout in numbers, earnings per share accretion is anticipated after the passage of 12 months from the closure of the deal. Further, cost synergies before tax (run-rate) of over $500 million is predicted by the fourth year of the deal closure.

Events Related to the Rockwell Collins Buyout

It’s worth mentioning here that United Technologies issued senior notes in August 2018 to partly fund the cash portion of the transaction value for Rockwell Collins acquisition. Of $11-billion notes issued, proceeds from the offerings of $1 billion of 3.350% senior notes due 2021, $2.25 billion of 3.650% senior notes due 2023, $1.5 billion of 3.950% senior notes due 2025, $3 billion of 4.125% senior notes due 2028, $750 million of 4.450% senior notes due 2038 and $750 million of senior notes with floating interest rate will be utilized for the buyout payment.

In October 2018, the U.S. Department of Justice gave green signal for the sale of Rockwell Collins to United Technologies.

Acquisitions by United Technologies

Over time, United Technologies easily penetrated unexplored markets, added products to portfolio and expanded geographical footprints with the help of acquired assets. In the first nine months of 2018, the company invested approximately $177 million in making acquisitions.

In October this year, the company’s business unit — UTC Climate, Controls & Security — completed the acquisition of S2 Security. Notably, S2 Security will be combined with Lenel — part of UTC Climate, Controls & Security — to form LenelS2.

In August, the company acquired Predikto Inc. for an undisclosed amount in a bid to strengthen its data analytics and digital capabilities. Predikto develops software that automates tasks involved in estimating industrial equipment breakdown, including algorithm development and complex data integration.

Earnings Projections and Price Performance of United Technologies

United Technologies, with approximately $103.4-billion market capitalization, currently carries a Zacks Rank #3 (Hold). The company is poised to gain from stronger Otis; Climate Control and Security; Pratt & Whitney; and Aerospace Systems sales as well as innovation investments and cost-cutting measures. However, inflation in material and labor costs, as well as forex woes, remains concern.

For 2018, the company anticipates adjusted earnings per share of $7.20-$7.30, higher than $7.10-$7.25 stated earlier.

In the past 60 days, the Zacks Consensus Estimate for earnings on the stock has increased 0.7% to $7.27 for 2018 and decreased 1.4% to $7.76 for 2019. Further, these estimates represent year-over-year growth of 9.3% for 2018 and 6.8% for 2019.

United Technologies Corporation Price and Consensus


United Technologies Corporation Price and Consensus | United Technologies Corporation Quote

In the past month, the company’s share price has increased 6.6% as against 2.4% decline recorded by the industry.

Stocks That Warrant a Look

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In the past 60 days, bottom-line estimates on the stocks improved for the current year. Further, earnings surprise for the last reported quarter was a positive 111.90% for HC2 Holdings and 11.72% for Crane.

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