How Dan Loeb May Have Helped Drive UTX-Rockwell Deal
United Technologies Corp.'s (UTX) move to buy airplane parts maker Rockwell Collins Inc. (COL) for $30 billion including debt, setting up the biggest deal in the history of aerospace, emerged after an activist hedge fund manager reportedly has been agitating for a different kind of deal.
The blockbuster transaction seeks to combine the largest and fourth-largest aircraft parts maker in the U.S. United Technologies, of Farmington, Conn., will pay $140 a share for Rockwell Collins, of Cedar Rapids, Iowa, in cash and UTX stock. Rockwell Collins shareholders will receive $93.33 a share in cash and $46.67 in shares of United Technologies common stock. The deal is expected to close by the third quarter of 2018.
And the combination comes after the New York Post reported last month, citing sources, that an activist hedge fund investor may be accumulating shares and agitating behind the scenes at United Technologies. The report argued that the activist investor, possibly Third Point LLC's Dan Loeb, is putting UTX on the defensive and had been pressing it behind-the-scenes to spin off non-core businesses.
Larger corporations targeted by activists who seek to pressure companies to divest divisions or sell themselves often seek to make big transformative acquisitions as a poison pill on the insurgent fund's efforts to have them broken up. It is very possible that the private activist agitations was a key contributor, pushing United Technologies CEO Gregory Hayes to buy the cockpit gear maker.
In addition, activists also often target companies that have rejected acquisition offers, based on the prospect that such a rejection may have raised the ire of shareholders at the target company. Last year, Hayes successfully defended UTX against a $90 billion hostile takeover offer by Honeywell International Inc. (HON).
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At the time, the company suggested that a United-Honeywell combination would not pass antitrust muster. The Deal, a unit of The Street, reported in February 2016 that a big regulatory threat to that combination was the Department of Defense. A key issue is that since the end of the Cold War, consolidation has resulted in a steep decline in the number of defense contractors from more than 20 in the 1980s to only six today, including United Technologies.
However, analysts have reportedly argued that they don't expect significant antitrust issues with a United Technologies-Rockwell deal since each company makes different aerospace parts.
Nevertheless, Rockwell's advisers included experts in antitrust, suggesting that regulatory concerns were evaluated. Skadden, Arps, Slate, Meagher & Flom LLP partners Clifford Aronson, antitrust and competition, and Frederic Depoortere, European Union and international competition, advised Rockwell. In addition, Skadden partners Charles Mulaney, Jr., Richard Witzel, Jr., Seth Jacobson and Regina Olshan also advised Rockwell Collins on the deal.
In addition, Wachtell, Lipton, Rosen & Katz partners Martin Lipton, Joshua Cammaker, Edward J. Lee and Jeannemarie O'Brien provided legal advice to United Technologies.
Beyond Loeb, at least one other fund that occasionally engages in activism, Southeastern Asset Management Inc., has a stake in United Technologies. Southeastern owns a 0.7% United Technologies stake, according to securities filings.
In addition, Loeb owns a 0.2% stake in Honeywell, and in April he urged the company to separate its aerospace unit via a spinoff. He said that the spinoff would result in an increase in shareholder value in excess of $20 billion.
Nevertheless, a director battle to drive a spin off or other action at United Technologies would have been a huge endeavor. The company's mark capitalization is $97 billion so any battle would have been one of the largest ever.
A Third Point spokeswoman declined to comment. United Technologies did not return a request for comment.
Editor's note: This article was originally published by The Deal, a sister publication of TheStreet that offers sophisticated insight and analysis on all types of deals, from inception to integration. Click here for a free trial.
