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United Technologies Buys Goodrich for $16.4B

United Technologies Corp. agreed to buy Goodrich Corp. for $16.5 billion, adding a maker of aircraft landing gear and jet-turbine casings to take advantage of a record surge in commercial plane orders.

The purchase has an enterprise value of $18.4 billion, including $1.9 billion in net debt, the companies said in a statement yesterday. Goodrich stockholders will get $127.50 a share. Hartford, Connecticut-based United Technologies will finance about 25 percent of the deal with equity and the rest with new debt.

The acquisition of Goodrich’s marquee commercial aerospace brand marks the culmination of a years-long pursuit by United Technologies. Chief Executive Officer Louis Chenevert, who rose to his current post after running Pratt & Whitney jet engines, plans to fold Goodrich and Hamilton Sundstrand aviation equipment into UTC Aerospace Systems, based in Charlotte, N.C., and headed by Goodrich CEO Marshall Larsen.

Goodrich “deserves a premium for the effort it has expended to improve its market position,” Howard Rubel, a Jefferies & Co. analyst in New York, wrote before the agreement. “There are very few major new aircraft platforms for the next several years; the best way to be on what is new is to go with Goodrich.”

The acquisition marks one of the industry’s largest deals and the first big aerospace purchase for United Technologies since the 1999 takeover of Sundstrand Corp. for $4 billion. Based on 2011 estimates, the purchase adds sales of about $8 billion a year, boosting revenue to $66 billion for United Technologies, which also makes Sikorsky helicopters and Otis elevators.

Profit Growth

The acquisition may increase per-share profit at United Technologies by as much as 10 percent in 2012 and 12 percent in 2013, Rubel said in a note to clients on September 19. Jeffrey Sprague, co-founder of Vertical Research Partners, estimated profit growth of 25 cents a share in 2012 and 72 cents in 2015 before the deal was announced. He based the projections on an offer of $125 a share.

United Technologies signalled its interest in new a approach to acquisitions in March, when Chenevert promoted William Brown to lead deals and growth initiatives. Brown previously headed UTC Fire & Security, a role in which he completed more than 40 acquisitions.

United Technologies’ most recent wooing of Goodrich began last December, said a person with knowledge of the talks. Only in the last few days did it become clear that the approach was likely to lead to a deal, the person said.

Deal Valuation

United Technologies executives had just one day — Sept. 20 — with full access to Goodrich’s books, this person said. That night, after the review was complete, Chenevert confirmed he was still committed to the $127.50-a-share price at a dinner with Larsen at the St. Regis Hotel in New York, the person said. Chenevert and his predecessor, George David, have often used the site for delicate negotiations and investor meetings.

United Technologies’ bid represents a premium of 47 percent to Goodrich’s closing share price on September 15, the day before talks were reported.

Excluding Goodrich, the conglomerate has paid an average premium of 18 percent in almost 30 deals for which terms were disclosed since 2001, according to data compiled by Bloomberg. The premiums are calculated using a 20-day average.

Brown’s move into the acquisitions role followed what analysts said were rare missteps by United Technologies, including an approach to automatic teller maker Diebold Inc. in February 2008. That offer was rescinded in October of the same year after the Canton, Ohio-based company spurned requests for due diligence.

Share Performance

Goodrich closed at $86.48 on September 15 in New York Stock Exchange composite trading. The shares closed yesterday at $109.49, before surging in late trading to $122 at 7:59 p.m.

United Technologies slid 1.5 percent yesterday to $74.87, less than its closing price of $75.61 on September 15.

Since Chenevert took the CEO post from David on April 9,2008, shares climbed 6.8 percent through Sept. 15, outperforming an 11 percent decline in the broader Standard & Poor’s 500 Index.

Goodrich reported sales of $6.97 billion last year, compared with $54.3 billion for United Technologies. Chenevert’s three aerospace businesses — Pratt, Sikorsky and Hamilton Sundstrand — made up $22.23 billion of that total.

2010 Sales Comparison

Adding commercial aerospace revenue would be a boost for United Technologies after Pratt’s geared turbofan engine failed to win placement on Boeing Co.’s upgraded 737, the world’s most widely flown jetliner. The engine, which Chenevert spent more than $1 billion and a decade developing, is a choice on Airbus SAS’s upgraded A320neo family, a 737 rival.

Goodrich is the world’s biggest manufacturer of landing gear, and its products include nacelles, the casings that house jet engines, and de-icing systems used on planes.

JPMorgan Chase & Co. and Goldman Sachs Group Inc. are financial advisers for United Technologies while Wachtell, Lipton, Rosen & Katz are providing legal counsel. Credit Suisse Group AG and Citigroup Inc. are providing financial advice to Goodrich and Jones Day is legal counsel.

Source: Bloomberg