United Tech (NYSE:UTX)
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2 Months : From May 2019 to Jul 2019
By Thomas Gryta
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 11, 2019).
Within a few weeks of being thrust into the CEO job, Greg Hayes held a meeting to review United Technologies Corp.'s financial outlook and strategy. He made a pledge to constantly evaluate the conglomerate's businesses, which included Otis elevators and Sikorsky helicopters.
"We're never ever done, and we're going to continue to look in a disciplined, and let me say, dispassionate way at the entire portfolio," he told investors and analysts in December 2014. "We will do those things no matter how difficult."
In less than five years, the accountant turned chief executive has been true to his word. He has revamped the sprawling company with a series of sales and purchases that will leave him atop one of the biggest aerospace and defense companies in the world.
He sold Sikorsky soon after taking over and in early 2016 fended off a hostile $90 billion takeover attempt by rival Honeywell International Inc. Instead, he set plans to spin off the Otis division and the Carrier business, which makes heating-and-cooling systems. All told, he will exit units that accounted for $37 billion of annual revenue, or more than half of what he inherited.
Mr. Hayes has replaced them with a $23 billion takeover of aerospace supplier Rockwell Collins last year and now a proposed merger with military contractor Raytheon Co. that will create a giant worth more than $100 billion. It will still be a conglomerate, but it will be focused on aerospace, making everything from Pratt & Whitney jet engines to Patriot missile systems.
UTC and its fellow conglomerates have been under pressure from activist investors to justify their existence, which can create bloated bureaucracy and shield poor-performing divisions. Mr. Hayes often describes UTC's management as being "activists," meaning they are always looking for value in the conglomerate's businesses.
When activist investor Third Point LLC acquired a stake in UTC last year, many of its recommendations were similar to moves that were already under way at the company.
Under his watch, UTC shares have gained roughly 20%, compared with a nearly 40% rise for the S&P 500. Over the same five years, its rival Honeywell has climbed more than 80% while General Electric Co. has plunged 60% and set plans to break itself apart.
Mr. Hayes spent six years as chief financial officer before he succeeded Louis Chenevert in a hasty hand off after the board determined Mr. Chenevert was too disengaged from the company's business.
While CFO, Mr. Hayes was involved in operations and played a central role in managing the portfolio, overseeing several major deals. UTC bought GE's security business for $1.8 billion in 2009 and acquired aircraft-components maker Goodrich Corp. for $16.4 billion in 2011.
After getting the top job in 2014, Mr. Hayes set off making changes with an aggressive cost cutting program. In July 2015, UTC agreed to sell its Sikorsky helicopter unit to Lockheed Martin Corp. for $9 billion. In an interview Sunday, Mr. Hayes said he saw the Sikorsky unit as constrained to a platform.
Mr. Hayes often speaks his mind and hasn't held back in his criticism of airplane makers nudging their way into providing aftermarket services. Engine makers like UTC's Pratt & Whitney typically sell the huge machines with little or no profit but then make up the money by selling decades of servicing and parts.
"If we're going to change that model," he said, "we're going to have to think about how we price our products."
Mr. Hayes has also found himself in the middle of national political squabbles.
An early 2016 decision to close a Carrier manufacturing plant in Indianapolis became a lightning rod for populist criticism after a video of a manager announcing the layoffs went viral. Then presidential candidate Donald Trump used Carrier as a target on the campaign trail as he promised to protect U.S. manufacturing jobs.
After the election, President Trump called Mr. Hayes and pressured him to change his mind. UTC reached a deal to keep some jobs in Indiana after getting a package of incentives. Ultimately, about 1,300 jobs left the U.S. because of the move to Mexico.
Mr. Hayes isn't above changing his mind. He graduated high school with a plan to become an attorney, he told a magazine from the Purdue School of Management in 2015, but switched course after spending a year studying pre-law at Cornell University.
He transferred to Purdue University, where he majored in economics and was a punter on the football team. He landed in a job as a certified public accountant, a profession he pursued for eight years. Eventually he got a finance role at aerospace parts supplier Sundstrand. The company was acquired by United Technologies in 1999 and Mr. Hayes climbed his way into upper management, becoming chief financial officer in 2008.
Write to Thomas Gryta at firstname.lastname@example.org
(END) Dow Jones Newswires
June 11, 2019 02:47 ET (06:47 GMT)
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