UNITED TECHNOLOGIES TO ACQUIRE GOODRICH CORPORATION
By Howard Wheeldon, Senior Strategist at BGC Partners

21 Sep 11. News that the parent company of helicopter manufacturer Sikorsky, the aero engine manufacturer Pratt and Whitney, Otis Elevator and Hamilton Sundstrand – United Technologies – is to acquire Charlotte, North Carolina based aircraft landing gear, aerospace related technology and component manufacturer Goodrich Corporation shows that there are still a few signs of life to be found in an otherwise moribund mergers and acquisitions market. As an agreed and essentially cash based deal in which the Hertford, Connecticut based United Technologies will pay $16.4bn to Goodrich shareholders at $127.50 per share plus taking on approximately $1.9bn of net debt – assuming the deal meets with regulatory approval this will be the first decent sized acquisition that UTX has made since it acquired Hamilton Sundstrand back in 1999.

Having supplied maybe as many as 29,000 sets of landing gear to Boeing over the years and as now a fast growing supplier of landing gear and other equipment to Airbus Goodrich makes an absolutely perfect combination to add into the already significant United Technologies aerospace and defence portfolio. The acquisition of the decently profitable Goodrich Corporation will also enhance the already strong base of United Technologies defence activities bringing in electronic systems (sensors and integrated systems, ISR plus engine control and power systems) wing actuation systems and engine nacelles business activities [Lockheed Martin, Northrop Grumman and Sikorsky are all on the Goodrich customer list]. No slouch internationally either with a total 23,000 staff employed in over 90 facilities in 16 countries it is worth noting that Goodrich actuation systems activities in Solihull and Wolverhampton, England had at one time been part of Joseph Lucas. In fact other former Lucas businesses are also to be found in the Goodrich portfolio since the acquisition of TRW Aeronautical Systems in 2002, including Lear Siegler.

Also in the UK and in the engine intelligence systems activities Goodrich is partnered with Rolls-Royce in a joint venture company called Aero Engine Controls. In addition a very interesting part of the company’s intelligence, surveillance and reconnaissance (ISR) activities can be found in Malvern, Worcestershire.

While United Technologies is paying an 18% premium for the shares of Goodrich on an agreed basis it is acquiring a profitable company and one that in my view has a great future. With much of Boeing and Airbus capacity on some aircraft sold out over the next few years and with order backlogs of the two big aircraft makers having never been as large as they are today the outlook for civil aerospace activities looks very good. Equally one can also say that even though defence cuts are biting hard there is still plenty to go for in this particular arena. Given tight liquidity and availability of funding suffice to say that deals such as this and that may to an extent be considered industry consolidation will continue to be the exception rather than the rule over the next year. However, when and if they are sensibly priced and argued as this one is and projecting combined sales at around $66bn they will be welcomed with open arms by markets.

21 Sep 11. United Technologies Corp. (NYSE:UTX) has reached agreement to purchase Goodrich Corporation (NYSE: GR) for $127.50 per share in cash. This equates to a total enterprise value of $18.4bn, including $1.9bn in net debt assumed. United Technologies expects to finance the transaction through a combination of debt and equity issuance. The equity component is expected to approximate 25 percent of the total. The closing is subject to customary closing conditions, including regulatory and Goodrich shareholder approvals.

Following completion of the transaction, United Technologies is expected to have worldwide sale