Up Next for the United Tech-Rockwell Tie-Up: The Antitrust Ordeal
14 Septiembre 2017 - 4:59AM
Noticias Dow Jones
By Doug Cameron
Questions are surfacing over how antitrust authorities will
treat the tie-up between United Technologies Corp. and Rockwell
Collins Inc. amid a broader debate over whether the combination
will drive up costs in the aerospace industry.
Regulators, especially in Europe, are likely to be sensitive to
the repercussions from the proposed takeover, announced last week,
because it represents a culmination of years of smaller-scale
consolidation. United Technologies agreed to purchase Rockwell
Collins for $23 billion in the biggest all-aerospace deal in
history, creating a powerhouse making everything from cockpit
electronics to landing gear and engines.
Share-price moves since the deal's announcement indicate
investors are putting a 70% probability on the transaction closing
as planned by the third quarter of 2018. Rockwell Collins' stock on
Wednesday traded around $131, below United Technologies' offer
price of $140 a share in both cash and stock.
Industry experts say Europe's antitrust watchdog represents the
biggest potential obstacle to the deal. There is relatively little
overlap between the two companies -- which would have combined
annual aerospace revenues of $40 billion a year -- in terms of
products manufactured, a primary focus of regulators in the U.S.
Other countries take nontangible considerations, such as the extent
of a company's dominance in a sector or segment of a supply chain,
into account.
"If there is an issue, we expect it would be in Europe and/or
China, because scope, rather than just scale, matters," said
Sanford C. Bernstein & Co. analyst Doug Harned.
Experts are drawing parallels between the United
Technologies-Rockwell Collins deal and the planned combination of
Honeywell International Inc. and General Electric Co., which the
European Commission blocked in 2001. The commission's rationale was
that the deal would stifle competition.
United Technologies Chief Executive Greg Hayes said last week
that the companies don't expect antitrust problems given that there
are only a "few hundred million dollars" in product overlap. This
includes cabin interior and lighting products.
United Technologies and Rockwell Collins may make few of the
same parts, but could leverage their combined buying power to
squeeze their own suppliers and demand higher prices from Airbus SE
and Boeing Co., as well as airlines. Mr. Harned said this could
attract the European regulator's attention.
The deal requires approval from 17 regulators, reflecting the
global nature of the aerospace industry. Each regulator has its own
set of priorities.
Attention is also on China, whose regulators are becoming a more
important factor in aerospace deals. The country accounts for
around 20% of Boeing and Airbus orders, and is also developing its
own commercial airliners.
Last year, Honeywell's high-profile bid for United Technologies
didn't move forward, in part because United Technologies executives
didn't think a deal would pass antitrust muster.
Plane makers, concerned about the clout of a super-supplier,
objected to that potential combination and already have voiced
opposition to the latest one.
Boeing quickly came out against United Technologies' proposed
takeover of Rockwell Collins. "We remain skeptical whether that's
going to add value for us," Boeing CEO Dennis Muilenburg said at an
investor conference on Wednesday.
The world's biggest plane maker has questioned whether the deal
would benefit customers and threatened to explore regulatory
options and review existing contracts with the two companies.
Boeing plans to examine whether the deal is inconsistent with "the
long-term health and competitiveness of the aerospace industry
supply chain."
Airbus and Boeing are pressuring suppliers to cut costs,
manufacturing more parts in house and chasing the lucrative repair
business. That is encouraging deal making among smaller firms.
Industry experts said the purchase of Rockwell Collins -- if
approved by antitrust officials -- could trigger a round of deals
among larger companies that could help spur the creation of a
counterweight to Airbus and Boeing.
"I think this will be the start of more consolidation," said
David Gale, head of North American industrial mergers and
acquisitions at Ernst & Young LLP. "It's going to force others
to broaden their products and services."
The number of transactions in the sector has already climbed
over the past two years. More than 100 aerospace and defense deals
were tracked in three of the past four quarters, according to Janes
Capital Partners LLP. Deals numbered around 70 a quarter over the
prior two years.
"The two groups forming in front of us are [United Technologies]
and Honeywell," said Lou Peluso, a consultant at AlixPartners LLP.
"They're going to start sucking up stuff. It's a bit of a land
grab."
Write to Doug Cameron at doug.cameron@wsj.com
(END) Dow Jones Newswires
September 14, 2017 05:44 ET (09:44 GMT)
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