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What Analysts Expect From The United Technologies-Rockwell Collins Merger

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What Analysts Expect From The United Technologies-Rockwell Collins Merger
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United Technologies Corporation (NYSE: UTX) officially announced its long-rumored $30 billion buyout of Rockwell Collins, Inc. (NYSE: COL). United will pay $93.33 in cash and $46.67 in United stock, a combined takeout price of $140 per share.

United announced that Rockwell Collins will be merged with the company’s existing Aerospace Systems unit to form a new entity called Collins Aerospace Systems. According to Bank of America analyst Ronald Epstein, the fact that Rockwell Collins CEO Kelly Ortberg will hold the title of CEO of Collins Aerospace Systems suggests the possibility of a spinoff down the line.

“The Wall Street Journal has suggested a spin-off in the future, and the new titles may support this view,” Ortberg wrote on Tuesday.

Investors don’t seem to like the details of the deal, sending United stock down more than 4 percent on Tuesday. Canaccord Genuity analyst Ken Herbert praised the deal in a new note to clients.

“We believe the acquisition will create the largest tier 1 aerospace supplier, with important positions on all major programs,” Herbert wrote on Tuesday. He acknowledged that the $140 price tag representing 14.5x projected fiscal 2018 EBITDA is steep, but pointed out that United management expects the deal to be accretive in the very first year. In fact, United expects synergies in excess of $500 million within four years of the deal’s completion.

Prior to completion, the merger must be approved by Rockwell Collins shareholders and regulators, but Herbert said he doesn’t see any major reason for the deal to be rejected.

Bank of America maintains a Buy rating and $140 price target for United Technologies.

Related Link: Aerospace Mega-Deal: United Technologies Buys Out Rockwell Collins For $30 Billion

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Latest Ratings for UTX

DateFirmActionFromTo
Jun 2018Morgan StanleyReinstatesOverweightOverweight
May 2018Daiwa CapitalUpgradesNeutralOutperform
Apr 2018Stifel NicolausMaintainsHoldHold

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