United Technologies (UTC) has completed its $30 billion acquisition of Rockwell Collins and now plans to spin-off its Otis and Carrier units by 2020.
This will see United Technologies comprise engine manufacturer Pratt & Whitney and Collins Aerospace Systems - the new unit created through the merger of Rockwell Collins and UTC Aerospace Systems.
The new division supplies avionics, cabin interiors, in-flight WiFi, and flight simulators, among many other electrical, mechanical and software products for the commercial and military aerospace industry.
On a pro-forma basis, the Collins Aerospace and Pratt & Whitney businesses had total sales of $39 billion in 2017, UTC says.
Greg Hayes will remain the chief executive officer and chairman of United Technologies following the separation of elevator unit Otis and its building safety and security operations into Carrier.
UTC says the breakup will leave each business better positioned to pursue a “capital allocation strategy more suitable to its respective industry and risk and return profile.” The individual companies will also enjoy greater flexibility with their own stock, as well as management and employee incentives.
The company had been under investor pressure to spin-off those businesses in favor of a company more focused on aerospace.
The proposed separation is expected to be free of US federal income tax for UTC shareholders, the company says. Each spin-off is subject to customary conditions, including final approval by United Technologies' board of directors, receipt of a tax opinion from counsel, among other considerations, the firm adds.
UTC projects that, including the acquisition of Rockwell Collins, it will have sales of $64.5 to $65 billion in 2018. The company also expects $500 to $750 million of accretion to free cash flow in 2019 from Rockwell Collins.
UTC announced in September 2017 that it was to acquire Rockwell Collins for $30 billion in cash and shares. The company received approval from China’s State Administration for Market Regulation on 23 November to acquire Rockwell Collins, which was the last regulatory hurdle it needed to clear to complete the acquisition.