A Honeywell-United Technologies Merger Makes Sense If The Offer Is $115 Or Higher

Sterne Agee CRT’s Peter Arment maintained a Neutral rating for United Technologies Corporation UTX, while raising the price target from $100 to $115. He said that it had become clear that Honeywell International Inc. HON may not back off its pursuit for United Technologies.

“While we initially figured a merger of equals would be untenable with regulators and customers, we believe HON could be willing to pursue larger asset sales to satisfy regulators and raise its bid for UTX to satisfy shareholders,” analyst Peter Arment wrote.

Honeywell indicated only $3-$4 billion in required asset sales and is looking to raise cash through the sale of Honeywell Process Solutions [HPS]. Arment added, however, that the company seems to be downplaying the regulator issues and potential asset sales, and the range could grow to at least $10 billion.

Despite this, the analyst believes that a deal could still be achieved, since aerospace consolidation is “just one factor in this deal.” He mentioned that the aerospace overlaps between the two companies would result in regulators requiring divestitures “which we estimate could top $10 billion.”

“Clearly, a $108 per share takeover is not going to be enough for management or shareholders, however $115+ ($7-$10 billion higher value) could be enough for shareholders,” Arment added. Sterne Agee CRT has a Buy rating and a price target of $113 for Honeywell.