United Going After Rockwell Collins? Here's Why It's Merely 'Plausible'

Rockwell Collins, Inc. COL spiked as much as 12 percent in weekend futures trading on reports of a potential sale to United Technologies Corporation UTX, a deal analysts deem “plausible” considering the bidder’s past interest.

Between Rockwell Collins’ capacity to generate domestic cash and catalyze an anticipated breakup in UTC’s Aero and Industrial segments, Deutsche Bank analyst Myles Walton considers the deal, itself, unsurprising.

But the timing is a “head-scratcher.”

UTC management recently outlined boundaries on its merger pursuits favoring smaller deals and all but ruling out avionics firms, and Rockwell Collins just finalized its acquisition of B/E Aerospace, a company in which UTC never expressed interest.

At the same time, the buyer does not seem well positioned to successfully integrate such a large operation, according to Bernstein analysts. UTC is seen to be in a “challenging period,” as it has yet to resolve Geared Turbofan issues, improve margins at UTC Aerospace Systems and install a president at its Otis Elevator subsidiary.

“After no progress in raising EPS [earnings per share] for five years, we do not see this as the right time to distract [UTC] management with the implementation of a major deal like Collins,” Bernstein’s Douglas Harned, Christian Laughlin and Finbar Sheehy wrote in a Monday note.

They added that the production scale offered by Rockwell Collins would lend limited benefit to UTC’s operational performance, and the deal wouldn’t do much for the seller, either. Rockwell Collins is seen to be in a “strong position today,” boasting growth in all business segments in spite of Boeing Co BA’s expanding reach.

With a $137 price target on the stock, Bernstein doesn’t see much sense in an anticipated $130-per-share sale.

At last check, shares of Rockwell Collins were up 3.94 percent at $123.69.

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