United Tech, Rockwell Deal Could Face Biggest Hurdle in Antitrust Scrutiny

There are concerns the tie-up could send aerospace costs soaring.
By Kinsey Grant ,

United Technologies Corp. undefined and Rockwell Collins Inc. (COL) announced last week a $23 billion deal that will be the largest ever in the aerospace industry when it closes, but the enormity of the tie-in could bring extra antitrust scrutiny from regulators, according to the Wall Street Journal.

This deal comes after years of small-scale consolidation in the aerospace industry, prompting regulators, especially in Europe, to take extra care in examining the long-term repercussions of creating such a powerhouse firm that expects as much as $40 billion in revenue per year.

European regulatory concerns are the biggest threat to the completion of a deal, industry experts said. United and Rockwell don't overlap much in operations, so a combined company would have a hand in everything from landing gears to cockpit technology. With that, regulators in the U.S. and Europe have become concerned with both scale and scope, the Journal reported.

Some experts have compared the deal to the proposed Honeywell Int'l Inc. (HON) - Get Report and General Electric Co. (GE) - Get Report merger that European regulators blocked in 2001. The reasoning for blocking that combination, the European Commission said, was that it could suffocate competition.

The combined company could demand higher prices from firms such as Airbus SE (EADSY) and Boeing Co. (BA) - Get Report by eliminating competition from other parts suppliers. Boeing has already stated that it's against the deal, as United and Rockwell haven't made a clear case that a combined company will increase value for the Boeing.

The market gives about a 70% probability that United will complete its Rockwell buyout by the third quarter of 2018 as proposed. Rockwell stock closed at about $131 Wednesday, making United's $140 per share offer about a 7% premium to current prices.

The deal can only go through with approval from 17 regulators across the globe, each with its own set of standards.

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