United Technologies Corporation moved a step forward toward the separation of its Otis and Carrier businesses into two independent companies, as it received a green signal from its board of directors yesterday. Notably, the separation plans were communicated by the company in November 2018.
Yesterday, the company’s share price decreased 9.9%, closing the trading session at $107.51 per share. However, the day’s high was at $116.83.
Inside the Headlines
As noted, for each of its shares, United Technologies will distribute one common share of Carrier and half common share of Otis to shareholders of record as of Mar 19, 2020. Adjustment for fractional shareholding will be done in cash. Ownership of United Technologies’ shares will remain the same as before. The spin-off distribution will be effective on Apr 3, 2020.
Post separation, Otis Elevator Company (Otis) will continue manufacturing escalators, moving walkways and elevators. It will be known as Otis Worldwide Corporation and will trade on NYSE under the ticker symbol “OTIS”.
Carrier will keep on making building automation; heating, ventilation, and air conditioning (HVAC); security and refrigeration; and fire safety products. It will be known as Carrier Global Corporation, trading on the NYSE under the ticker symbol “CARR”.
The separate companies, with solid innovative capabilities, will be leaders in their respective fields and will likely bring in more customized solutions for their customers as well as create greater value for shareholders. The separation procedure will be tax-free.
The remaining business will comprise United Technologies’ Collins Aerospace Systems and Pratt & Whitney. The business will merge with Waltham, MA-based Raytheon Company , which specializes in products and services for defense and government markets. Both parties received approvals from the respective shareholders.
The all-stock merger of equals, as it has been termed by the participating companies, will create an aerospace and defense giant. The combined company will be known as Raytheon Technologies. Of its total shareholding, roughly 57% will be with United Technologies, while the rest will be with Raytheon. Its headquarters will be in the greater Boston metro area, while the board of directors will have eight members from United Technologies and seven from Raytheon.
Apart from sophisticated technologies and products, the combined company intends on rewarding shareholders with $18-$20 billion in the initial 36 months. Annual run-rate cost synergies will likely be $1 billion in the first four years. Of this, annual savings of $500 million will be returned to shareholders.
With all pre-conditions fulfilled and the receipt of required regulatory approvals, the merger is likely to be completed in the first half of 2020.
Zacks Rank, Price Performance and Estimate Trend
United Technologies, with $103.3-billion market capitalization, currently carries a Zacks Rank #4 (Sell).
In the past three months, the company’s share price has decreased 27.9% against a 17.9% decline recorded by the industry.
In the past 60 days, the Zacks Consensus Estimate for its earnings has been lowered by 4.9% to $8.28 for 2020 and by 2.6% to $9.28 for 2021. Further, the estimates suggest year-over-year growth of 0.2% for 2020 and 12.1% for 2021.
United Technologies Corporation Price and Consensus