Rockwell Collins acquisition: What we know

Questions remain as the deal has a year to close

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This week, United Technologies Corp. announced it would buy Rockwell Collins.

While some information about how the acquisition will work is known, there are still plenty of questions. They include whether Rockwell Collins will maintain its headquarters in Cedar Rapids after its merges with United Technologies’s aerospace systems division.

Here is what we know and what we don’t:

WHAT HAPPENED

Connecticut-based United Technologies (UTC) said this week it would acquire Rockwell Collins for $23 billion. Counting Rockwell’s debt, the deal is valued at $30 billion.

Rockwell shareholders will receive $93.33 per share in cash and $46.67 in shares of UTC stock.

WHAT HAPPENS TO ROCKWELL COLLINS

Rockwell Collins will merge with UTC Aerospace Systems, a division of United Technologies. The combined division will be called Collins Aerospace Systems.

Collins Aerospace is expected to have $23 billion in annual sales and about 70,000 employees.

WHY THIS MATTERS

Rockwell is the largest employer in Cedar Rapids and one of the largest in the state of Iowa. It has 8,000 employees in Cedar Rapids and another 1,350 in Eastern Iowa.

Rockwell reports 30,000 employees worldwide.

The company also occupies millions of square feet of office, lab and manufacturing space in the city.

WHAT ABOUT ROCKWELL EMPLOYEES?

The companies expect $500 million in cost savings from the deal within four years.

Some layoffs are expected with the acquisition. Company executives cautioned, however, that they expect a minimal effect on manufacturing, design and engineering work in Cedar Rapids and Iowa.

Job cuts, they said, would be focused “primarily at the corporate level.”

No number has been given for potential layoffs.

WHO WILL LEAD COLLINS AEROSPACE?

Rockwell Collins Chairman, Chief Executive Officer and President Kelly Ortberg will be the chief executive officer of Collins Aerospace. UTC Aerospace Systems President Dave Gitlin will serve as president and chief operating officer.

Greg Hayes, the chairman and CEO of United Technologies Corp., will continue in his current position.

WHERE WILL IT BE BASED?

We don’t know. UTC and Rockwell have not determined the headquarters location for Collins Aerospace.

Rockwell Collins is based in Cedar Rapids, UTC Aerospace Systems in Charlotte, N.C., and UTC in Farmington, Conn.

As they are currently organized, Rockwell will contribute about one-third of the annual sales of Collins Aerospace, with UTC Aerospace contributing the other two-thirds, Ortberg told The Gazette this week.

THE TIMELINE

The acquisition was announced Monday and requires approval by regulators and Rockwell shareholders.

Rockwell expects a shareholder vote sometime in February, Ortberg said.

The acquisition is expected to close in July, August or September of 2018.

No timeline has been given for when the headquarters for Collins Aerospace will be determined.

TERMINATION FEE

If the acquisition does not go through, Rockwell will have to pay United Technologies a $695 million termination fee, according to the merger agreement.

Rockwell would have to pay the fee under certain conditions, such as if it accepts a different buyout offer. If regulators stop the deal, the fee would not have to be paid.

THE REACTION

Cedar Rapids and state officials were cautiously optimistic this week about the deal. While there are a lot of unknowns, they took comfort in Rockwell saying layoffs likely won’t hit many production staff members.

Investors, analysts and customers, such as Boeing, had a different response, however.

Shares of United Technologies fell about six percent the day after the acquisition was announced. Investors and some analysts seemed to balk at the high price UTC paid for Rockwell — and the fact that the deal leaves UTC with a lot of debt — even if they saw how the combination made sense.

Rockwell Collins shares barely moved the day after, but are up 41 percent so far this year.

“Although we do not cover (UTC), the firm’s eagerness to buy (Rockwell) seems to us like the type of empire building that has caused other conglomerates to suffer in the past,” Drexel Hamilton analyst Pete Skibitski wrote in a research note Wednesday.

Reuters reported Wednesday the acquisition could receive more scrutiny from regulators in Europe than here in the United States.

Airplane makers Boeing and Airbus also expressed skepticism of the deal, with Boeing suggested it may try to force regulatory action if it doesn’t see the benefits of a UTC-Rockwell tie-up.

Given the size of Boeing and Airbus in the industry, they both hold considerable sway.

l Comments: (319) 398-8366; matthew.patane@thegazette.com

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