Acquisition: United Technologies to Pay $16.5 Billion for Goodrich

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Non-military orders for planes are rising as military orders fall in light of decreased defense spending worldwide. (Photo: Stock.xchng)
Non-military orders for planes are rising as military orders fall in light of decreased defense spending worldwide. (Photo: Stock.xchng)

FINANCE

  • Acquisition means 50% premium on Goodrich share price
  • United Technologies absorbs almost $2 billion debt in deal
  • Share buybacks suspended for 2012 to offset $12 billion debt

Aerospace and construction technology provider United Technologies Corp. has agreed to purchase aerospace manufacturing company Goodrich Corp. for $16.5 billion, allowing United Technologies to capitalize on growing numbers of commercial planes commissions.

Non-military orders for planes are rising as military orders fall in light of decreased defense spending worldwide.

The $16.5 billion offer marks an almost 50% premium on Goodrich’s September 15 closing share price. This is far above other bids by United Technologies, with the company having paid less than 20% premium in close to 30 deals over the past decade.

United Technologies has not undertaken such a major aerospace purchase since its takeover of Sundstrand Corp for $4 billion in 1999. The acquisition, carried out under Chief Executive Officer Louise Chenevert, equally means that United Technologies absorbs a debt of almost $2 billion.

Chenevert, 54, has been the company’s CEO for three years, before which he ran aircraft engine manufacturer Pratt & Whitney.

Boeing, Airbus Demand Up As Commercial Aircraft Orders Rebound

A higher rate of manufacturing of civil aircraft, such as Airbus A320neo and Boeing 787 Dreamliner, is boosting business for aerospace technology and aircraft components providers.

Airbus recorded a record backlog in orders in August for its 234 aircraft. The company recorded overall orders in excess of 11,000, of which 8,000 were for A320 and A320neo family aircraft. This brings its overall backlog to a record level of over 4,200 aircraft. Airbus’ net orders for 2011 up to and including August were in excess of 1,000 aircraft with 36 aircraft delivered in August and 334 delivered in the first eight months of 2011. Boeing reported net orders for 2011 of 379 on September 20.

Goodrich stockholders stand to get $127.50 per share in the acquisition, which has an enterprise value of almost $18.5 billion.

United Technologies is covering a quarter of the cost of the deal with equity and the remainder with new debt. The deal will see the company fold Goodrich and Hamilton Sundstrand aviation equipment into UTC Aerospace Systems, in North Carolina.

Share buybacks will be discontinued for 2012 and then dropped by as much as a half in the two following years to deal with the $12 billion debt United Technologies expects to accrue over five years. The company’s yearly cash flow is over $5 billion.

United Technology has an A2 credit rating with Moody’s Investors Service and its debt has an A rating with Standard & Poor, who downgraded its outlook from stable to negative.

According to 2011 forecasts, the acquisition adds around $8 billion of yearly sales, representing a $66 billion rise in revenue for United Technologies. The company will benefit from commercial aerospace earnings, especially since Pratt’s geared turbofan engine was denied placement on Boeing’s upgraded 737 jetliner.

Key Statistics - Global Aircraft, Parts and Engines Market (source: Global Industry Analysts) (except the list of companies)

  • The global aviation market is expected to hit $122 billion by 2015.
  • Asia-Pacific is expected to lead the market with compound annual growth rate of more than 3.5%.
  • Key industry players include: American Champion Aircraft Corporation, ATR, BAE Systems, Bell Helicopter Textron, Bombardier, CFM International, Cirrus Design Corporation, DAHER-SOCATA, Diamond Aircraft Industries, Embraer-Empresa Brasileira de Aeronautica, European Aeronautic Defense and Space (EADS), Airbus, Eurocopter, GE Aviation, Hawker Beechcraft Corporation, Ilyushin Aviation Complex JSC, International Aero Engines, IRKUT Corporation, Lancair International Inc., Lockheed Martin, MD Helicopters, NH Industries, Pilatus Aircraft Ltd., Piper Aircraft, Pratt & Whitney, Raytheon, Rolls-Royce, RUAG AG, Snecma, Fokker Aerospace BV and The Boeing Company

By Ellsy O'Neill for
Ellsy O'Neill is a Paris-based writer, proofreader and translator. She covers industry, culture and current affairs.

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