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United Technologies Corp. floated the idea of a partnership with Rockwell Collins before it proposed to acquire the Cedar Rapids avionics company, recently released filings show.
Connecticut-based UTC announced in September plans to acquire Rockwell for $30 billion, including debt. Filings with the Securities and Exchange Commission published since then provide details on how that deal came together.
The filings indicate, for example, that at least one other company had interest in acquiring Rockwell. UTC also initially suggested a partnership with Rockwell, not a full acquisition, that would have UTC own two-thirds of a new entity and Rockwell own one-third.
One filing also shows Rockwell Collins Chief Executive Officer Kelly Ortberg said an acquisition of Rockwell 'wasn't the board's plan' at the beginning of the company's fiscal year.
'The world changes and we have to react to that,' Ortberg told Rockwell leaders during a Sept. 12 meeting.
Back in August 2016, the head of an unknown company — referred to only as Company A in the filings — told Ortberg it 'may have an interest in potentially acquiring Rockwell Collins.' Further details, such as a price, were not discussed.
Company A's proposition came as Rockwell had started work to acquire B/E Aerospace, a Florida maker of airline seats and other interior products. That acquisition would not be announced publicly until October 2016.
Spokesmen for Rockwell Collins and UTC declined to comment on the identity of Company A.
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Ortberg took the conversation to Rockwell's executive committees and board, which rejected the offer in September 2016. The board wanted the company to focus on the B/E deal.
'Following such discussions, the Rockwell Collins Board instructed senior management that Rockwell Collins …
should not engage with Company A regarding any possible interest in acquiring Rockwell Collins,' a filing reads.
Rockwell Collins publicly announced its acquisition of B/E in October 2016.
'COMPANY WAS NEVER FOR SALE'
Ortberg thought the acquisition of B/E — an $8.6 billion purchase, with debt — would have kept Rockwell from being an acquisition target.
'Actually, I thought once we got to about $8 billion (in revenue), we were pretty immune from being taken over,' he told Rockwell executives on Sept. 12, 2017. '(There are) only a few companies in the world that would have the capacity to do that. United Technologies, obviously is one.'
Rockwell's board was not seeking to sell the company, Ortberg also said.
'First of all, the company was never for sale. The board and I didn't go out and say, 'Geez, let's go sell the company,'' he said, according to a transcript filed with the SEC.
Rockwell considered UTC's acquisition because its board has to evaluate those deals, Ortberg said.
'So, people ask me, 'Well, why did we sell now?' And, you know, the timing of it really isn't …
that's not really our discretion. We did it now because that's when we had an offer that came in that the board had to evaluate,' Ortberg said at the meeting.
PARTNERSHIP PITCHED FIRST
The first mention of UTC's interest in Rockwell came on Jan. 23 — almost exactly 32 weeks before UTC and Rockwell announced they had reached a deal.
On that day, UTC CEO Greg Hayes contacted Ortberg to set a meeting to 'discuss potential business collaboration opportunities.' Ortberg declined the meeting so his company could 'focus on closing its pending acquisition of B/E Aerospace.'
The B/E deal closed on April 13. Five days later, Hayes reached out to Ortberg again for a discussion, and a meeting was set for the beginning of May.
On May 2, UTC pitched a strategic partnership — not a complete acquisition — between the two companies. UTC would own a majority of the partnership and Rockwell would have a minority.
Ortberg, the filings read, would lead the partnership as its chief executive.
A few weeks later, Hayes laid out the idea of an acquisition of Rockwell.
'On May 22 …
Mr. Hayes contacted Mr. Ortberg and advised Mr. Ortberg that while UTC preferred the partnership structure it had proposed, UTC was prepared to consider the acquisition of Rockwell Collins, including if another acquiror of Rockwell Collins were to present itself,' the filing reads.
Two days later, Ortberg and the CEO of Company A discussed whether Company A wanted to acquire Rockwell. Company A's CEO said his business intended to give Rockwell a 'written indication of interest' of an acquisition.
By June 28, that communication had not arrived, though. The board of Rockwell met the same day and 'expressed various concerns with UTC's proposed strategic partnership,' including about the new entity's leadership.
Hayes, the head of UTC, alluded to these concerns on an earnings call this past Tuesday.
'After a lot of discussion with Kelly, I know Kelly and his board spent some time going through this, they really had some concerns about how the governance might work with Rockwell Collins only owning a third of the joint venture,' Hayes said on the call. 'And so they came back to us as it says in the S-4 (filing) and they suggested that we make an offer for the whole company, which we ultimately did.'
UTC officially sent a written proposal to acquire Rockwell on July 8, about eight weeks before the deal would be announced publicly. The two companies negotiated for the next few weeks over pricing and other details.
Ortberg also reached out to Company A and another unknown business, referred to as Company B in the filing, to check if they had an interest in acquiring Rockwell.
Executives for both Company A and B eventually told Ortberg they would not make an offer for Rockwell.
Negotiations between UTC and Rockwell continued into August, including counter proposals from Rockwell. On Aug. 25, negotiations appeared to hit a wall, when UTC rejected those counterproposals.
At the time, a UTC representative told one representative from Rockwell that 'there did not appear to be a basis for further discussions between the parties regarding a possible transaction.' Discussions continued, however, including Hayes asking Ortberg whether he wanted to lead the combined company's aerospace business.
'Mr. Ortberg indicated his willingness to serve in that capacity, but Mr. Hayes and Mr. Ortberg did not discuss any terms or conditions of Mr. Ortberg's potential post-transaction employment with UTC,' the filing reads.
On Aug. 29, UTC made its 'best and final proposal' to buy Rockwell. The proposal included acquiring Rockwell for $140 a share in cash and stock, among other provisions.
Negotiations continued through that week and over the weekend. Rockwell's board approved the deal on Sept. 4. It was announced the same evening.
The deal is subject to shareholder and regulatory approval. It is expected to close in the latter half of 2018.
HOW ROCKWELL COLLINS AND UTC MADE A DEAL
In September, United Technologies Corp. announced plans to acquire Rockwell Collins. A recent filing made with the Securities and Exchange Commission provides at least a basic timeline of how those talks came together.
Here are the highlights:
Aug. 12, 2016: Company A describes interest in potentially acquiring Rockwell Collins.
September 2016: Rockwell's board tells management to focus on B/E Aerospace acquisition and not Company A's potential offer.
Oct. 23, 2016: Rockwell announces plans to acquire B/E Aerospace.
Jan. 23, 2017: United Technologies Corp. CEO Greg Hayes asks to meet Rockwell CEO Kelly Ortberg to discuss potential 'collaboration opportunities.' Ortberg declines.
April 13, 2017: Rockwell completes B/E Aerospace acquisition.
April 18, 2017: Hayes requests another meeting with Ortberg. A meeting is scheduled for May 2.
May 2, 2017: UTC pitches a 'strategic partnership' that would require a change of control of Rockwell.
May 22, 2017: Hayes tells Ortberg UTC prefers the partnership, but would consider an acquisition of Rockwell.
May 24, 2017: Company A's CEO says that company will send a written indication of interest in buying Rockwell.
June 28, 2017: Company A's indication has not arrived. Rockwell's board expresses concerns with UTC's partnership proposal.
June 30, 2017: Company A tells Ortberg it will not offer to acquire Rockwell.
July 8, 2017: UTC's Hayes sends Ortberg a written proposal to acquire Rockwell.
July-August 2017: Ortberg asks Company A and Company B about potential interest in acquiring Rockwell. Both companies eventually say they won't pursue a purchase. Discussions continue with UTC.
Aug. 25, 2017: UTC rejects counterproposals by Rockwell. A UTC representative tells Rockwell 'there did not appear to be a basis for further discussions.' Discussions continue through the end of August, however.
Aug. 29, 2017: UTC makes its 'best and final' offer for Rockwell.
Sept. 4, 2017: Rockwell's board approves the acquisition. UTC and Rockwell announce the deal that evening.
Source: Securities and Exchanging Commission filing.
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