Shares of Goodrich Corp. are soaring more than 10 percent in Thursday morning trading following a report that United Technologies Corp. agreed to acquire the aircraft components manufacturer for $16.5 billion.
In making its largest acquisition in a decade, UTX said it will concurrently scale back its expenditures on stock buybacks and other smaller transactions over the next few years.
UTX’s Chief Executive Louis Chenevert told reporters: This [deal] is one that has been on the radar screen, and I think it's been in the works for over a year between [Goodrich chief executive] Marshall [Larsen] and I.”
The company said that about 75 percent of the acquisition will be financed by debt, with the remaining facilitated by stock issuance amounting to $4.6 billion in new shares.
In addition, a group led by JPMorgan Chase & Co. will provide a $15 billion loan package to fund the acquisition.
According to UTX spokesman John Moran, the company expects the transaction will add to earnings by mid-2014, two years after the deal closes.
The acquisition will allow UTX to beef up its presence in the aerospace business. Goodrich is well-positioned to grow sales as Boeing’s ) 787 Dreamliner and upcoming Airbus A320neo aircraft start to push up production.
UTX is forecasting revenue of $58 billion in 2011, while Goodrich projects 2011 revenue of about $8 billion.
Goodrich delivers on all of our acquisition criteria, said Chenevert.
While UTX shareholders will likely wince at the prospect of a substantial amount of shares being transferred to Goodrich in the deal, Wall Street analysts cautiously applaud the transaction.
A Deutsche Bank analyst said, “We see the [Goodrich] property as an attractive, complementary fit to United Technologies existing aerospace businesses. With macroeconomic forecasts showing some deterioration in the last few months, some see UTX taking a risk in paying for up for GR at present. [However] this is one of the few properties that have scale, great complementary fit and long-term synergies to UTX.”
An analyst at FBR noted, “The acquisition increases [UTX’s] current 43 percent exposure to the commercial aero/defense markets to about half of total and adds complementary products to the company’s already strong portfolio. While valuation appears slightly on the higher side especially in the context of current low public company valuations…the high quality of the asset, solid growth prospects and visibility into aero customer backlogs justifies the premium in our view.”