The Rising Influence of Rising Affluence

[DewDiligence]

UTX Will Sell Hamilton Sundstrand (and Wind-Energy Business) to Fund GR Acquisition

http://online.wsj.com/article/SB10001424052702304459804577283772750147452.html

›March 15, 2012, 5:48 p.m. ET
By KATE LINEBAUGH

Seeking to maintain its credit rating while not angering shareholders, United Technologies Corp. changed its financing plans for the $16.5 billion acquisition of aircraft-components maker Goodrich Corp., announcing the sale of several units including its Rocketdyne rocket-engine business.

United Technologies expects to raise about $3 billion by year-end through the sale of the businesses, which also include its Clipper Windpower wind-energy business and its Hamilton Sundstrand Industrial businesses.

"Back in September when we initially laid out the financing plans it was pretty simple, we were going to borrow about $12.5 billion and issue about $4 billion in equity, and nobody liked it," Chief Financial Officer Greg Hayes told investors Thursday.

The businesses United Technologies seeks to sell had sales in 2011 of $750 million at Rocketdyne, $1.4 billion at the industrial businesses and $300 million at Clipper. The company isn't ruling out other divestitures.

By selling those businesses and using $3 billion in cash, the Hartford, Conn.-based company expects to lower the amount of equity it will sell to fund the deal from about $4 billion—when the deal was announced in September—to $1.5 billion in bonds that will convert into stock when they mature. United Technologies will reduce its borrowing to about $9 billion.

Later Thursday, United Technologies said it would take $950 million in charges to write down the value of Rocketdyne and Clipper.

United Technologies also makes Otis elevators, Pratt & Whitney aircraft engines and Carrier air-conditioning systems.

In funding the Goodrich purchase, United Technologies' biggest acquisition ever, the company is balancing the desire of its shareholders to limit the sale of new stock with the need to contain borrowing to maintain its credit rating [duh].

Last month, Moody's Investors Service said it could cut United Technologies' A2 credit rating, five steps above junk, citing concerns about the possibility the industrial conglomerate could use less equity in funding the Goodrich acquisition.

The company said it is on track to close its purchase of Goodrich by the middle of the year after recently winning an overwhelming vote of approval from Goodrich shareholders.

In selecting businesses to divest, Mr. Hayes said Rocketdyne wasn't core and that without a national space policy, growth would be limited.

He described the company's 2010 investment in wind power company Clipper as a mistake. "We bought into this business with a thought that there was going to be a renewable energy mandate in this country, and there has not been one," he said [LOL]. The proliferation of natural gas supply and lower prices have eroded the economics of wind power.

The company is working with Goldman Sachs Group Inc. to sell the industrial businesses in Hamilton Sundstrand, which include meters, pumps and compressors.

United Technologies also said it expects a weak first quarter in some of its businesses like Otis and its climate control business this year. And the company also increased its restructuring charges for 2012 to $350 million from as much as $200 million previously anticipated.‹