Honeywell Could Up Its Bid For United Technologies, Credit Suisse Says

Commenting on the proposed merger by Honeywell International Inc. HON, Credit Suisse’s Julian Mitchell mentioned that the value creation for United Technologies Corporation UTX shareholders would be closer to the $10-15bn mark, once synergies are adjusted for divestments.

“In our opinion, there is a fairly strong possibility that HON revises its bid higher in the coming days in order to further encourage UTX shareholders to pressure the latter's Board to 're-engage' (in HON's words) with HON in negotiations,” analyst Julian Mitchell wrote.

He added, however, that a revised bid, which may not exceed $120 per share, would not be “sufficiently high” to satisfy United Technologies’ claim that it the Honeywell bid grossly undervalues the former company.

If United Technologies can keep its shares from approaching the current Honeywell bid of $108 per share in the near term, the company “should be able to remain independent,” Mitchell commented, while adding that the probability of a hostile bid by Honeywell is small.

United Technologies had projected gross synergies of $2.5bn, which appears “a more realistic figure” than Honeywell’s target of $3.5bn, the analyst mentioned. He added, “We do not think investors will place much weight on UTX's counter-argument that the synergies target is 'highly aggressive' partly because both companies are 'already operating at best in class margins',”

The Credit Suisse report said that in case the deal does occur, without regulators forcing huge asset sales, it would clearly be a positive for Honeywell in the long run.