February 29, 2016

Honeywell-United Technologies merger talks will not continue

Antitrust scrutiny brought the Honeywell-United Tech merger to a grinding halt.

The ongoing back and forth between multinational aerospace component suppliers United Technologies and Honeywell International have finally stopped- at least for the near future. The two companies have a long history of potential merger opportunities, yet have stalled progress in this direction for a variety of reasons.

Long history of merger talks
Talks first began decades ago in 1993, Andrea Shalal and Greg Roumeliotis at Reuters wrote, when the two aerospace part powerhouses looked into the possibility of a merger, but did not pursue this course of action. When United Tech's Chief Executive Gregory Hayes took over at the end of 2014, he initiated merger talks once again as part of his mission to broaden the organization's market reach even further.

"I am honored by the Board's selection and I am excited to be leading this terrific company," Hayes said in a company press release at the time of his appointment. "Our focus will remain on creating innovative products and solutions for our global customers and delivering best-in-class returns for our shareowners, all supported by our highly skilled and talented workforce."

Inside sources revealed that Honeywell was not interested in a merger at that time, though once United Tech's market shares dipped late last year, Honeywell opened up merger talks once again. Last December, the company announced its $1.5 billion restructuring plan due to slow international market growth.

During these reopened talks, Honeywell came with its own offer. The offer valued at $108 a share and $42 a share in cash would have created a combined company with an estimated $90 billion in commercial revenue.

Why won't merger talks continue?
An anonymous inside source told Shalal and Roumeliotis that such as deal would cause significant upheaval among major industry plane makers, stating that "if you put these two companies together, they would build the plane from tip to tail. There's just no way that Boeing and Airbus would ever accept that."

After looking into the deal with its legal team, United Tech recently announced that it would not pursue the illustrious merger deal, as the attorneys were not confident that the deal would hold up under antitrust scrutiny. Antitrust laws include both state and federal regulations crafted to protect the marketplace from being dominating by monopolies or price-fixing techniques.

Essentially, legislators passed these standards into law to protect the right to fair market competition. As this deal would make the combined company a clear dominating force in the aerospace parts and systems industry, it would face a long legal battle should companies protest such a merger.

Jeff Bialos, a law partner with Sutherland Asbill & Brennan, explained to Shalal and Roumeliotis that "if this were to go forward, it would get significant U.S. government scrutiny. This kind of a deal could well result in some kind of material divestiture."

In an interview, Hayes revealed that there were ongoing talks with Honeywell CEO David Cote to reach a beneficial merger deal, but the deal is now seen as "dead in the water" due to antitrust sanctions and federal scrutiny.

"It ain't going to happen," Hayes said in an appearance on CNBC. "There is just no way to get it done … It would be irresponsible for us to pursue the merger … in this regulatory environment."

Through partnering with an M&A expert, your organization can ensure that its deal meets its projected growth needs and desires. Contact us today to learn more about our extensive experience with successful technology mergers and acquisitions, along with our commitment to working with companies to agree to the best possible deal for their current and future business needs.