United Technologies Corp.’s pending acquisition of Rockwell Collins still should be on track after receiving approval from American antitrust regulators — despite wider fears of China holding up deals, an analyst and a University of Iowa professor say.
The U.S. Department of Justice said this past Monday it would allow Farmington, Conn.-based UTC to complete the deal if Rockwell divests its pneumatic ice protection systems business, which develops products to clear ice off airplane wings, and its trimmable horizontal stabilizer actuator (THSAs) business, which develops products to keep airplanes level in the air.
Those two units do not include any facilities or jobs located in Iowa.
Rockwell already has agreed to sell the THSAs business to French aerospace company Safran S.A., which announced the purchase in its midyear earnings report, released Sept. 6.
The deal is undergoing regulatory scrutiny, but the company expects to close that sale in the first half of 2019.
UTC was hoping to close the Rockwell purchase by the end of third quarter, Sept. 30.
UTC Chief Executive Officer Greg Hayes said during an investor conference Sept. 14 that the remaining action was finding a buyer for one of the Rockwell divisions. He later said Safran was that announced buyer, but did not specify a buyer for the other division.
Hayes also told investors at that conference he expects Chinese antitrust regulators to approve the deal soon after the Justice Department gives its blessing.
However, ongoing trade tensions between China and United States could raise a high hurdle for that deal to clear as Beijing seeks more leverage points against the Trump administration on several deals with American companies involved.
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Brian Langenberg, an industrial analyst with Langenberg and Company in Chicago, said he doesn’t see an antitrust issue with the acquisition, but the present U.S.-China relationship doesn’t help in getting Beijing’s blessing.
“The current reality of the situation that there are many ways to have trade competition or trade conflict beyond tariffs, and this could absolutely be one of those situations,” he said.
The idea has precedence. In late July, American smartphone chipmaker Qualcomm Inc. abandoned its bid to buy Netherlands-based NXP for $44 billion after Chinese regulators didn’t give approval by the deadline.
However, Richard Aboulafia, vice president of Analysis at Virginia-based aerospace research company Teal Group, said China will get some technology transfers from the two companies as part of the terms of their approval — a key reason why he doesn’t believe China will interfere with the acquisition.
“Basically they’d be saying, ‘you’ve agreed to all our terms, but now we’re going to hit back and you and not only that, we’re going to draw attention to exactly the intellectual property grabs that the Trump administration doesn’t like about us,’” he said. “It’s a bunch of a self-inflicted wounds for no return.”
Yiming Qian, a finance professor at the University of Iowa, said the Qualcomm-NXP deal’s failure isn’t enough to constitute a pattern, particularly because China is a major manufacturing base for smartphone makers.
She also said the two weeks after getting Justice Department approval isn’t a long time in the realm of mergers and acquisitions. Although stakeholders in the deal will become more nervous as time goes by without a green light from Beijing, she said both UTC and Rockwell seem confident that they’ll eventually secure approval.
“I understand the concern, but I’m not sure from what I’ve observed so far that that’s a card China is playing for the purpose of the trade war,” she said.
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