The deal is significant since it will allow United Technologies Corp to negotiate better rates with Airbus and Boeing for airplane components.
In a significant development United Technologies Corp, an aerospace supplier has agreed to acquire avionics and interiors maker Rockwell Collins Inc for $30 billion. The deal marks the creation of the world’s largest civilian and defense aircraft components maker.
As per the terms of the agreement, Farmington, Connecticut-based United Technologies will shell out $140 for every Rockwell Collins’s share, which is split between $93.33 in cash and $46.67 in stock, said both companies. The offer price represents a 17.6% premium to Rockwell’s $119 listed share price as on August 4.
The acquisition price implies a total transaction value of $30 billion, including Rockwell Collins’ debt, and a total equity value of $23 billion.
As per United Tech, it plans to fund the cash portion through debt issuances and cash on hand.
As per the terms of the merger, the deal will see the creation of a combined to create a new business unit named Collins Aerospace Systems, as the result of the merger between UTC’s aerospace systems division and Rockwell Collins’.
“This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems,” said Greg Hayes, UTC’s chairman and CEO, in a statement.
“Together, Rockwell Collins and UTC Aerospace Systems will enhance customer value in a rapidly evolving aerospace industry by making aircraft more intelligent and more connected,” said Hayes.
The development comes in the wake of the world’s leading plane makers, Airbus SE and Boeing Co trying to grab profits from their suppliers. Both plane makers are pushing their respective suppliers for lower prices and are moving into the high-margin after-market segment that is typically occupied by suppliers.
Case in point: in July 2016, Boeing had said it would build its own avionics business in what could pose a threat to Rockwell Collins.
Recently Airbus had urged UTC to stay focused on fixing industrial problems that have delayed new aircraft deliveries.
If plane makers “are going to take more of the after-market or demand more of the after-market, we’re going to have to think about how we price our products,” said Hayes to analysts, in July.
According to analysts, by increasing the manufacturing capability of the number of components required on each aircraft, United Technologies could potentially gain some leverage against pressures.
Rockwell Collins has a market value of $21.2 billion.
Morgan Stanley & Co LLC was the financial adviser to United Tech, and Wachtell, Lipton, Rosen & Katz was its legal adviser.
J.P. Morgan Securities LLC and Citigroup Global Markets Inc were Rockwell’s financial advisers, while Skadden, Arps, Slate, Meagher & Flom was its legal adviser.