Ackman Opposes Aerospace Merger -- WSJ
June 12 2019 - 3:02AM
Dow Jones News
By Cara Lombardo
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (June 12, 2019).
William Ackman, a big United Technologies Corp. shareholder who
earlier pushed the industrial giant to streamline its business, is
now urging the company to call off its planned megamerger with
Raytheon Co., which he says makes no strategic sense.
The activist investor sent an email to United Technologies Chief
Executive Greg Hayes early Sunday morning after The Wall Street
Journal reported on the impending deal. He wrote that he was
"extremely concerned" about the combination, according to a copy of
the email seen by the Journal. The companies confirmed their plan
to merge later Sunday.
The all-stock transaction would create an aerospace-and-defense
giant, eclipsed in sales only by Boeing Co. and Airbus SE. The
proposed takeover, which doesn't include a premium for Raytheon
shareholders, would take place after United Technologies completes
a plan to spin off its Otis elevator and Carrier building-systems
businesses in the first half of next year and become primarily an
aerospace provider. The addition of Raytheon's big defense
franchise would create a company with a valuation exceeding $100
billion -- assuming shareholders and regulators approve it.
Executives billed the deal as a merger of equals that would
allow them to cut costs, share technology and protect against a
slowdown in demand.
Mr. Ackman begged to differ.
It "makes no sense to us why you would consider a stock
acquisition using today's massively undervalued UTC common stock to
buy a large business of inferior quality to the company's existing
businesses, and for which we cannot comprehend the strategic
logic," Mr. Ackman wrote. He added that if United Technologies
followed through with the deal, Pershing Square would oppose it,
publicly if needed, as would a "substantial majority" of other
shareholders.
United Technologies said Tuesday: "We are confident that our
shareholders will see the merits of this transaction and the value
it brings to them and the company. We will be working diligently in
the days and weeks ahead to make sure that the details of the
transaction are presented to and fully understood by all
shareholders." Raytheon representatives had no immediate
comment.
Mr. Ackman's Pershing Square Capital Management LP holds about a
0.7% position, according to Refinitiv. He took it early last year
and later called for a breakup. Another activist investor who had
urged United Technologies to break up, Daniel Loeb of Third Point
LLC, also has a position of less than 1%, according to the data.
His views on the deal couldn't immediately be learned.
The market reaction to the proposed merger hasn't been very
positive. Both stocks initially rose on the news Monday morning but
sold off after executives laid out the rationale for the
combination on a conference call that left some analysts
unconvinced. President Trump also expressed concern about the
deal.
The selloff intensified on Tuesday, with Raytheon shares closing
down 5.1% at $177.62, leading a downdraft that spread across the
defense industry. The nil-premium deal cast doubt on the sector,
wiping about $15 billion from the market value of the top seven
military contractors. United Technologies fell 4% at $122.94.
"It looks a lot like a 'reconglomeration' that adds complexity
to a story that was getting simpler," Carter Copeland at Melius
Research LLC wrote in a client note. "We find ourselves still
asking questions around what this combination tells us about the
limitations each management team saw in their stand-alone
portfolios."
UBS analyst Myles Walton said the biggest concerns from United
Technologies investors are that they're getting too low a value for
the company's aerospace business, cost savings are small and the
deal forces them to increase their exposure to the defense
sector.
The proposed merger -- the biggest so far this year with a
valuation of roughly $90 billion according to Dealogic -- is at
least the third megadeal this year that has faced a challenge from
shareholder activists, who also opposed purchases by Bristol-Myers
Squibb Co. and Occidental Petroleum Corp. Both deals so far have
withstood the challenges.
Doug Cameron and Thomas Gryta contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com
(END) Dow Jones Newswires
June 12, 2019 02:47 ET (06:47 GMT)
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