United Tech says a deal with Honeywell would face major challenges

Mon Feb 22, 2016 8:40pm EST
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By Andrea Shalal and Greg Roumeliotis

(Reuters) - United Technologies Corp (UTX.N: Quote) on Monday disclosed merger talks with fellow aerospace component supplier Honeywell International Inc (HON.N: Quote) but said a deal would "face insurmountable regulatory obstacles."

A merger could either be blocked outright or conditioned on significant divestitures after a lengthy and disruptive review period that would destroy shareholder value, United Tech said.

Merger discussions between the two U.S.-based multinationals are not currently active, and there have been no recent meetings among lawyers or bankers on any specifics, a source familiar with the matter said.

A merger of the two firms would create a behemoth with combined sales of more than $90 billion, a company responsible for a huge amount of equipment on commercial airliners, ranging from jet engines to airplane cockpits and landing gear.

Such a deal would likely draw opposition from plane makers such as Airbus (AIR.PA: Quote) and Boeing Co (BA.N: Quote), as well as the Pentagon, since the companies also make parts for key weapons programs, including Lockheed Martin Corp's (LMT.N: Quote) F-35 program.

"If you put these two companies together, they would build the plane from tip to tail," said a source. "There's just no way that Boeing and Airbus would ever accept that."

United Tech was reluctant to shed higher-margin commercial aerospace units that would likely be required to secure government approval, another source said.

CNBC first reported on the talks earlier on Monday. Honeywell declined to comment on the report. Pentagon officials had no immediate comment.   Continued...

A view of the corporate sign outside the Honeywell International Automation and Control Solutions manufacturing plant in Golden Valley, Minnesota, January 28, 2010.  REUTERS/ Eric Miller