With Sikorsky sale done, United Technologies eyes acquisitions

By Lewis Krauskopf

(Reuters) - Now that United Technologies Corp (NYSE: UTX) Chief Executive Greg Hayes has closed a deal to sell the conglomerate's Sikorsky helicopter unit, he may become an acquirer in his own right.

United Tech shares slipped 0.7 percent on Monday after news of the $9 billion sale to Lockheed Martin Inc became official.

Even though analysts applauded the price, investors may have already incorporated the benefits from splitting off the lower-margin business, a move United Tech had been signaling for months.

Also, United Tech, which reports earnings on Tuesday, will lose Sikorsky's profit contribution, estimated by Sterne Agee CRT at 6.5 percent of overall operating earnings this year.

It plans to offset that decline by using the deal's proceeds to repurchase shares, thus bolstering earnings per share. It has authorized a buyback of some $8 billion.

But Edward Jones analyst Matt Arnold said he believes that if the right acquisition comes along, United Tech could divert those funds from the buyback allocation.

"There’s an asterisk on it," Arnold said.

Hayes, who became CEO in November, has consistently said he wants to make acquisitions to boost the conglomerate's prospects. Without Sikorsky, United Tech is squarely focused in two areas: jet engines and other commercial aerospace systems and components; and elevators, climate control units and security systems for commercial buildings.

Hayes has said he prefers large deals but that his ambitions have been undercut by high prices of potential targets.

Even if United Tech uses the Sikorsky proceeds on buybacks, "they still have balance sheet flexibility to pursue acquisitions," said Sterne Agee CRT analyst Peter Arment.

Potential targets include electrical and lighting systems company Hubbell Inc (NYSE: HUB-B), Dublin-based security firm Allegion and British aircraft parts supplier Meggitt, Credit Suisse analysts said in a research note on Monday.

Some analysts said United Tech was more likely to use its cash held overseas for a foreign takeover, leaving the Sikorsky proceeds for buybacks.

United Tech had $5.28 billion in cash and cash equivalents on its balance sheet as of March 31, according to its most recent such disclosure. More than 97 percent of its cash was held by foreign subsidiaries as of that date, the filing said.

"If you think about markets starting to get better, Europe is one of those and that’s where an awful lot of that cash is," said Scott Lawson, vice president of investment management firm Westwood Holdings Group.

(Reporting by Lewis Krauskopf in New York; Editing by Christian Plumb)

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