Technology and aerospace giant United Technologies Corp has reached an agreement to purchase aerospace manufacturer Goodrich Corporation for a total enterprise value of US$18.4bn, including US$1.9bn in net debt.
UTC is offering US$127.50 per share in…
Technology and aerospace giant United Technologies Corp has reached an agreement to purchase aerospace manufacturer Goodrich Corporation for a total enterprise value of US$18.4bn, including US$1.9bn in net debt.
UTC is offering US$127.50 per share in cash, a premium of approximately 47% to Goodrich’s closing share price on 15 September, the day before takeover talks were first reported. The offer price also represents a valuation multiple of 12.9x LTM EBITDA and 11.7x 2011 estimated EBITDA, in line with similar US$1bn plus aerospace takeovers.
The closing is subject to customary closing conditions, including regulatory and Goodrich shareholder approvals.
Commenting on the acquisition, Louis Chenevert, chairman and CEO of UTC, said: “Goodrich delivers on all of our acquisition criteria. It is strategic to our core, has great technology and people, and strengthens our position in growth markets.”
Greg Hayes, CFO of UTC, stated: “We’re confident that this deal will be accretive by the second year and the IRR for this deal is well in excess of our cost of capital. Turning to valuation, price multiples are consistent with similar deals out in the marketplace. We plan to use a combination of debt and stock to fund the transaction. Our thinking is about 75% debt and 25% equity. Obviously, with the equity markets weak like they are today and have been for the last couple of months, the focus right now is on the debt markets. But we recognise we will have to issue equity, probably prior to close.”
To that end, UTC has already secured a US$15bn 364-day bridge loan from BofA Merrill Lynch, HSBC and JP Morgan to initially fund the acquisition. The company is expected to replace the bridge once the acquisition receives the necessary regulatory approval.
Hayes added, that he does not expect the sizeable debt financing to affect the company’s credit rating, “We’re also going to maintain our credit ratings, we worked very hard to do that. We expect to have good terms and a stable credit rating. We will be suspending share buyback through 2012 and significantly reducing that in 2013 and 2014, probably cutting it in half to about US$1bn a year. We’re also going to take our M&A placeholder, which we typically have at US$2bn a year, and reduce it to US$1bn a year for the next couple of years.
“The combination of UTC and Goodrich will make UTC a US$66bn company, based on pro-forma 2011 results, with slightly less than 50% of our sales coming from the aerospace sector.”
Goodrich is a global supplier of systems and services to the aerospace and defence industry. While its core business is aircraft landing gear, aircraft wheels and brakes, the company does develop satellite systems, including the US Air Force’s ORS-1 satellite.
UTC was advised by JP Morgan and Goldman Sachs on the acquisition, with Wachtell, Lipton, Rosen & Katz providing legal advice. Credit Suisse and Citigroup along with law firm Jones Day advised Goodrich.
