United Technologies Corp.
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United Technologies, Honeywell Talks Hit a Wall

Feb. 23, 2016
A merger “would face insurmountable regulatory obstacles and strong customer opposition” and discussions are likely finished for now.

United Technologies Corp. (IW 1000/59) has walked away from preliminary talks about a merger with Honeywell International Inc. (IW 1000/105) due in part to concerns that a deal wouldn’t win approval from antitrust authorities.

A tie-up of the aerospace giants “would face insurmountable regulatory obstacles and strong customer opposition,” United Technologies said Monday in a statement. An agreement could be blocked or conditioned on major asset sales, the company said. A Honeywell representative declined to comment.

Honeywell offered $108 per share last week for United Technologies, about 22% more than the stock price at the time, according to a person familiar with the matter. A deal could be among the larger aerospace mergers in history, creating a behemoth with products spanning jet engines, thermostats and elevators. The two companies have a combined market value in excess of $150 billion.

The statement by United Technologies came after shares rose 4.7% to $92.37 in New York on Monday, the biggest gain in more than four years, following a CNBC report on the talks. Honeywell fell 2% to $105.17.

Discussions of “potential collaborative options with Honeywell” didn’t extend beyond preliminary conversations, United Technologies said in the statement.

The two companies held informal merger talks about a year ago, after Gregory Hayes became United Technologies CEO in late 2014, according to another person familiar with the matter who asked not to be identified as the situation is private.

The conversations ended after United Technologies’ lawyers warned a deal would face stiff resistance from regulators, the person said. Honeywell approached United Technologies at least two more times since then.

“By far, the biggest impediment we see against this transaction would be potential regulatory pushback from antitrust concerns,” Deane Dray and Rob Stallard, analysts with RBC Capital Markets, said in a note. “Both Honeywell and United Technologies are market leaders within the aerospace and building services end markets, with some portfolio overlaps that might derail a merger attempt.”

United Technologies stumbled in 2015 as a strong U.S. dollar weighed on earnings and its Pratt & Whitney division faced heavy costs from the development of a new jet engine. The company announced a $1.5 billion restructuring plan in December to cut costs and reduce its manufacturing footprint. Hayes reached an agreement in July to sell the Sikorsky helicopter unit to Lockheed Martin Corp. for $9 billion.

United Technologies explored an acquisition of Honeywell in 2000 but withdrew from discussions as General Electric Co. submitted a bid. The deal between GE and Honeywell was scuttled the following year by European regulators.

The combined market value of United Technologies and Honeywell would still be less than GE’s $277.6 billion.

By Richard Clough and Ed Hammond

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