By Alwyn Scott and Mike Stone, Reuters From Business Insider

The aerospace supplier United Technologies Corp. has struck a $30 billion agreement to buy the avionics and interiors maker Rockwell Collins Inc., the companies said Monday, in a deal that bulks up UTC’s power with plane makers by creating one of the world’s largest makers of civilian and defense aircraft components.

The Farmington, Connecticut-based United Technologies will pay $140 a share for Rockwell Collins, split between $93.33 in cash and $46.67 in stock, according to the companies. The price represents a 17.6% premium to Rockwell’s $119 share price before news of the talks emerged August 4.

Shares of the Cedar Rapids, Iowa-based Rockwell Collins closed at $130.61 on Friday. US markets were closed Monday for the Labor Day holiday.

The acquisition price implies a total transaction value of $30 billion, including Rockwell Collins’ debt, and a total equity value of $23 billion. United Tech said it planned to fund the cash portion through debt issuances and cash on hand.

Under the deal, the companies said Rockwell Collins and UTC’s aerospace systems segment would be combined to create a new business unit named Collins Aerospace Systems.

“This acquisition adds tremendous capabilities to our aerospace businesses and strengthens our complementary offerings of technologically advanced aerospace systems,” UTC’s chairman and chief executive officer, Greg Hayes, said in the statement.

“Together, Rockwell Collins and UTC Aerospace Systems will enhance customer value in a rapidly evolving aerospace industry by making aircraft more intelligent and more connected,” he said.

Suppliers versus planemakers
The creation of a new giant in the top echelon of aircraft parts makers comes as the planemakers Boeing Co. and Airbus SE are trying to capture more of the profits earned by their suppliers. Both are pushing suppliers to lower prices and are moving into the high-margin aftermarket arena for parts and services that suppliers now enjoy.

In a move seen as a threat to Rockwell, Boeing said in July that it would build up its own avionics business.

Last week, Airbus urged the supplier UTC to stay focused on fixing industrial problems that have delayed new aircraft deliveries.

If planemakers “are going to take more of the aftermarket or demand more of the aftermarket, we’re going to have to think about how we price our products,” Hayes told analysts in July.

By making more of the components needed on each aircraft, analysts say, United Technologies will most likely gain some leverage to resist such pressures.

The deal also follows a wave of consolidation among smaller aerospace manufacturers in recent years that was caused in part by the need to invest in new technologies such as metal 3D printing and connected factories to stay competitive. A combined United Technologies and RockwellCollins could similarly invest, and their broad portfolios have little overlap.

United Technologies makes Pratt & Whitney jet engines used by Airbus, Bombardier Inc., Embraer SA, and other planemakers. It supplies engines for Lockheed Martin Corp.’s F-35 Joint Strike Fighter. It also supplies such key components as landing gear, air conditioning systems, and engine covers to a wide range of jetliners.

Rockwell Collins is a major avionics supplier to Boeing and Airbus and other planemakers. In April it added passenger seating, cabin interiors, lavatories, and galleys through its $6.4 billion acquisition of B/E Aerospace.

The two companies have spent a month trying to reach an agreement, and their combined sales would be more than $62 billion, compared with about $95 billion for Boeing.

United Technologies expects to close the purchase in the third quarter of 2018. The company, with a $94.2 billion market value, also owns Otis Elevator and the air conditioner maker Carrier.

Rockwell Collins has a market value of $21.2 billion.

The deal, which includes $7 billion in Rockwell’s debt, is expected to save more than $500 million by the fourth year after its completion, the companies said.

Morgan Stanley & Co LLC was the financial adviser to United Tech, and Wachtell, Lipton, Rosen & Katz was its legal adviser.

J.P. Morgan Securities LLC and Citigroup Global Markets Inc. were Rockwell’s financial advisers, while Skadden, Arps, Slate, Meagher & Flom was its legal adviser.

(Reporting by Alwyn Scott and Mike Stone; Additional reporting by Michael Flaherty and Chuck Mikolajczak in New York and Yashaswini Swamynathan in Bengaluru; Editing by Leslie Adler)

IMAGE: United Technologies plane REUTERS/Mark Blinch

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