Honeywell abandons $90.7-bn offer to buy rival United Technologies

Aircraft parts maker Honeywell International Inc yesterday said that it is abandoning its $90.7-billion offer to buy rival United Technologies Corp (UTC), citing the latter's unwillingness to discuss a deal.

Last week UTC rejected Honeywell's $108-a-share bid saying that the offer ''grossly undervalues'' the company and the deal was likely to be blocked by antitrust regulators or require heavy divestitures.

Connecticut-based UTC's CEO Gregory Hayes said, ''Notwithstanding the significant regulatory challenges and customer concerns, Honeywell's proposal grossly undervalues UTC and overstates potential synergies.''

''Effectively Honeywell's proposal is a leveraged buyout of UTC using UTC's own strong balance sheet. Putting aside the insurmountable regulatory risks, the proposal is not an attractive deal for UTC's shareholders and does not reflect UTC's strong long-term outlook.''

In its presentation, Honeywell noted that the merger would create a company with $97-billion in sales and would cut costs by 3.5 per cent of sales by the fourth year by consolidating properties, improve leverage in purchases and reduce administrative expenses.

The offer had come 16 years after UTC came close to buying Honeywell in 2000 for $41 billion, but the deal, although approved by US regulators, was rejected by the European Commission (See: United Technologies and Honeywell plan $40 bn merger).

Gregory Hayes said that after consulting the company's legal advisors, it concluded that a combination would be blocked outright or, even if it were possible to complete a transaction, the regulatory delays, required divestitures, and customer concerns and concessions would ultimately destroy shareholder value far beyond any synergies.

''It would also have a material negative impact on UTC's operations, customer relationships and talent retention. It would be irresponsible for UTC to move forward with the proposed combination under these circumstances,'' he added.

US regulators are either blocking or intensely scrutinising "mega-deals" and the US Department of Defense has expressed strong opposition to further consolidation of major defense contractors.

Besides the US, regulators in the EU, China, Brazil and Canada will also review the deal and may either challenge the deal, impose divestiture remedies and reject potential buyers for assets put up for divestiture.

These regulatory reviews could take up to 18 months, if not longer, given recent experience with transactions involving fewer areas of overlap, said UTC.

UTC owns Otis elevators, Carrier air conditioners and Pratt & Whitney jet engines, while Honeywell makes thermostats, auto turbochargers and airplane cockpit electronics.

The overlap of their businesses would include small aircraft engines, airplane power units and environmental systems as well as wheels and brakes.

UTC also said that the four largest commercial airframe manufacturers – Airbus, Boeing, Bombardier and Embraer - have already voiced their opposition to the potential merger both publicly and in no uncertain terms directly to UTC.