Providence, R.I.-based Textron, according to sources, had hoped to combine Sikorsky with its Bell Helicopter unit, following a template it used when it bought Beech Holdings in 2013 for $1.4 billion. The conglomerate in that case was able to consolidate the maker of Beechcraft and Hawker business jets with its in-house Cessna brand, creating a larger entity with better scale while extracting more than $85 million in combined costs.
The bid for Sikorsky was always more of a long-shot, given the size of the target and the potential antitrust concerns from bringing Bell and Sikorsky under one roof. Textron was outbid for the business by Lockheed Martin (LMT) - Get Report, which announced a $9 billion purchase of the UTC helicopter builder in mid-July.
Textron, which also makes golf carts, lawn mowers, defense vehicles and industrial components, could use a spark. The company beat on earnings but missed on revenue in the second quarter, and more alarmingly for analysts, failed to raise estimates for the rest of the year.
Bell has been part of the problem. The Textron helicopter unit has been hit by declining orders for its V-22 Osprey, and has struggled to grow. There are few other helicopter businesses to purchase, though Textron could attempt to combine Bell with the helicopter business of Osprey partner Boeing (BA) - Get Report or perhaps sell it to €6.3 billion-revenue Airbus Helicopters. Still, any transaction involving Bell would face Pentagon scrutiny.
There is some reason for hope that doesn't involve M&A. Analysts who favor the stock argue that any revenue pressure Bell experiences in the quarters to come can be offset by margin expansion elsewhere, in particular the business jet unit. And there are new products on the horizon, notably the Bell 525 Relentless helicopter that made its first flight last month and eventually the proposed Scorpion surveillance aircraft being developed in collaboration from AirLand Enterprises.
If it is unable to show growth, Textron could feel pressure to consider a breakup. The company's merged business jet unit, at $4.6 billion in annual sales, is arguably large enough to be spun off to shareholders. Meanwhile, its military-focused Textron Systems business, which dabbles in everything from training to sensors to manufacturing unmanned systems and marine and lands vehicles, could be sold outright or piecemeal.
Rhode Island's Textron is often viewed in the shadow of Connecticut-based United Technologies, a $12 billion market cap mini-version United, which has a cap of $90 billion. United Technologies shifted from buyer to seller this year when it put Sikorsky on the block. Time will tell whether Textron will follow.
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