United Tech (NYSE:UTX)
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1 Month : From May 2019 to Jun 2019
By Cara Lombardo
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 12, 2019).
William Ackman, a big United Technologies Corp. shareholder who earlier pushed the industrial giant to streamline its business, is now urging the company to call off its planned megamerger with Raytheon Co., which he says makes no strategic sense.
The activist investor sent an email to United Technologies Chief Executive Greg Hayes early Sunday morning after The Wall Street Journal reported on the impending deal. He wrote that he was "extremely concerned" about the combination, according to a copy of the email seen by the Journal. The companies confirmed their plan to merge later Sunday.
The all-stock transaction would create an aerospace-and-defense giant, eclipsed in sales only by Boeing Co. and Airbus SE. The proposed takeover, which doesn't include a premium for Raytheon shareholders, would take place after United Technologies completes a plan to spin off its Otis elevator and Carrier building-systems businesses in the first half of next year and become primarily an aerospace provider. The addition of Raytheon's big defense franchise would create a company with a valuation exceeding $100 billion -- assuming shareholders and regulators approve it.
Executives billed the deal as a merger of equals that would allow them to cut costs, share technology and protect against a slowdown in demand.
Mr. Ackman begged to differ.
It "makes no sense to us why you would consider a stock acquisition using today's massively undervalued UTC common stock to buy a large business of inferior quality to the company's existing businesses, and for which we cannot comprehend the strategic logic," Mr. Ackman wrote. He added that if United Technologies followed through with the deal, Pershing Square would oppose it, publicly if needed, as would a "substantial majority" of other shareholders.
United Technologies said Tuesday: "We are confident that our shareholders will see the merits of this transaction and the value it brings to them and the company. We will be working diligently in the days and weeks ahead to make sure that the details of the transaction are presented to and fully understood by all shareholders." Raytheon representatives had no immediate comment.
Mr. Ackman's Pershing Square Capital Management LP holds about a 0.7% position, according to Refinitiv. He took it early last year and later called for a breakup. Another activist investor who had urged United Technologies to break up, Daniel Loeb of Third Point LLC, also has a position of less than 1%, according to the data. His views on the deal couldn't immediately be learned.
The market reaction to the proposed merger hasn't been very positive. Both stocks initially rose on the news Monday morning but sold off after executives laid out the rationale for the combination on a conference call that left some analysts unconvinced. President Trump also expressed concern about the deal.
The selloff intensified on Tuesday, with Raytheon shares closing down 5.1% at $177.62, leading a downdraft that spread across the defense industry. The nil-premium deal cast doubt on the sector, wiping about $15 billion from the market value of the top seven military contractors. United Technologies fell 4% at $122.94.
"It looks a lot like a 'reconglomeration' that adds complexity to a story that was getting simpler," Carter Copeland at Melius Research LLC wrote in a client note. "We find ourselves still asking questions around what this combination tells us about the limitations each management team saw in their stand-alone portfolios."
UBS analyst Myles Walton said the biggest concerns from United Technologies investors are that they're getting too low a value for the company's aerospace business, cost savings are small and the deal forces them to increase their exposure to the defense sector.
The proposed merger -- the biggest so far this year with a valuation of roughly $90 billion according to Dealogic -- is at least the third megadeal this year that has faced a challenge from shareholder activists, who also opposed purchases by Bristol-Myers Squibb Co. and Occidental Petroleum Corp. Both deals so far have withstood the challenges.
Doug Cameron and Thomas Gryta contributed to this article.
Write to Cara Lombardo at email@example.com
(END) Dow Jones Newswires
June 12, 2019 02:47 ET (06:47 GMT)
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