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Honeywell Talks Deal With United Technologies

Mergers: The two industrial conglomerates, both makers of aerospace parts, are in talks to combine for a reported $40 billion.

October 20, 2000|JAMES F. PELTZ | TIMES STAFF WRITER

United Technologies Corp. said Thursday it's discussing a deal to buy Honeywell International Inc.--reportedly for about $40 billion--a marriage that would join two equally sized industrial conglomerates that also have a major presence in the aerospace components industry.

United Technologies' divisions include Pratt & Whitney jet engines, Otis elevators, Sikorsky helicopters and Carrier air conditioners, among others. Honeywell, meanwhile, was formed last December when AlliedSignal Inc. bought the old Honeywell Inc. for $15 billion and adopted the Honeywell name.

Honeywell, based in Morristown, N.J., makes various aircraft electronics and other aerospace components--many of which are produced at its big facility in Torrance--along with environmental control systems, specialty chemicals and power-generation products.

The companies confirmed late Thursday that they're in talks, after cable network CNBC reported the negotiations and said the purchase price could be about $40 billion. When normal trading hours ended Thursday, Honeywell's total stock-market value was $28.7 billion.

United Technologies, based in Hartford, Conn., and Honeywell have several things in common: They're both diversified makers of industrial goods, their annual sales last year were nearly even at about $24 billion, and they're both leading suppliers of aerospace parts not only for commercial jet makers such as Boeing Co. and Airbus, but also for the Pentagon.

Indeed, analysts said that it's not surprising to see two aerospace suppliers want to join forces, because their main customers--the big, primary aerospace manufacturers such as Boeing and Lockheed Martin Corp.--have been on merger sprees of their own in recent years to gain scale and efficiencies.

Those mergers, by creating just a handful of gigantic aerospace firms, also have enabled them to increasingly set the terms with suppliers, in terms of prices, said Brian Eisenbarth, an analyst with the investment firm Collins & Co. in San Francisco. But the United Technologies-Honeywell talks show that "now the suppliers are starting to get together and balance the tables."

The merger could have considerable impact in California, where there are about 4,700 Honeywell employees at nearly a dozen facilities. In Southern California, about 2,000 employees work in Torrance at the company's aerospace-parts facility. Torrance also is home of Honeywell's Transportation & Power Systems unit, where about 1,000 workers produce turbochargers, brake systems and air coolers for trucks and automobiles. Electronic Materials, another Honeywell division that makes semiconductor devices, is headquartered in Los Gatos.

Beyond aerospace, Honeywell's controls business--which includes products ranging from home thermostats to complex systems that manage the infrastructures of factories--would seem to complement United Technologies' Carrier and Otis divisions, analysts said.

But the acquisition also could present United Technologies with a big challenge, because Honeywell is still digesting its own merger with AlliedSignal. In fact, some analysts say the difficult process of integrating those two companies is one reason why--before Thursday's announcement--Honeywell's stock had plummeted 38% so far this year.

In normal trading hours Thursday, Honeywell's stock gained $2.19 a share, to $35.88, on the New York Stock Exchange. Then, after the merger reports surfaced, Honeywell's stock shot up to $42.75 a share in after-hours trading.

United Technologies' stock, meanwhile, slipped 38 cents, to $68 a share, on the Big Board but then sank to $60.50 a share in after-hours trading. The stock took a hit amid speculation that United Technologies would primarily use its stock to purchase Honeywell, thus adding to its number of common shares outstanding.

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Times staff writer Peter Pae contributed to this report.

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