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UTC Buying Goodrich

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By BREE FOWLER,  AP Business Writer

NEW YORK (AP) _ United Technologies Corp. said it will buy
Goodrich Corp. for about $16.4 billion in cash, calling the
aerospace and defense company a perfect addition that will allow it
to take advantage of rapidly growing demand for aircraft
components.

The Hartford, Conn.-based industrial conglomerate already owns
jet engine manufacturer Pratt & Whitney as well as Carrier heating
and cooling, Otis elevator and other businesses.

Goodrich makes a variety of aircraft components including
landing systems, wheels and brakes, along with systems for military
aircraft. The deal is expected to create a $66 billion company,
with a little less than half of its sales coming from aerospace,
United Technologies said.

“I am bullish on aerospace and the whole team is bullish on
aerospace, it’s one of the few areas with a brighter outlook
today,” Louis Chenevert, United Technologies’ chairman and CEO,
said in a conference call Thursday morning.

“Goodrich again like UTC is well positioned with higher content
on many new platforms,” he said.

The deal announced late Wednesday had been rumored for days,
sending Goodrich’s shares soaring.

United Technologies said it will pay $127.50 a share in cash for
Goodrich, which is based in Charlotte, N.C., and has 27,000
employees.

The offer amounts to a 16 percent premium over Goodrich’s
closing stock price on Wednesday and a 47 percent premium above the
stock’s price last Thursday, before word of a pending deal first
leaked.

Goodrich shares soared on the news. It was a rare bright spot
for the market on a day when the Dow Jones industrial average fell
more than 400 points on worries about another recession.
In heavy trading Thursday afternoon, Goodrich shares jumped
$11.05, or 10.1 percent, to $120.54, after touching a 52-week high
of $120.93 earlier in the session. United Technologies shares fell
$6.09, or 8.2 percent, to $69.78, after tumbling as low as $68.39
earlier. Over the past 52 weeks, its shares have traded between
$67.12 and $91.83.

Based on Goodrich’s outstanding shares and securities that can
be converted into common stock, the offer is worth about $16.4
billion. United Technologies said it would also assume $1.9 billion
in debt.

Under the terms of the deal, United Technologies is forming an
aerospace business unit that will be based in Charlotte and led by
Goodrich Chairman, President and CEO Marshall Larsen.

Chenevert said the aerospace sector is poised for growth, thanks
to demand from emerging markets and the need to replace aging
aircraft. He noted that Boeing Co. expects to deliver 33,500 new
aircraft in the next three years, compared with 20,000 in the last
20.
About 30 percent of Goodrich’s business comes from defense
spending, which has been hit with significant cuts in government
spending this year.

But Larsen said that Goodrich’s defense sales are very broad and
not dependent on any one or two large programs. In addition, the
areas it focuses on, which include surveillance and guidance
systems, along with helicopter and fighter aircraft programs, are
some of the least likely to fall victim to budget cuts, he said.

Despite an overall drop in government defense spending,
Goodrich’s space and defense revenue rose 8 percent on an organic
basis —  excluding the impact of currency fluctuations or
acquisitions– in the first half of this year, Larsen said

United Technologies said it expects to finance the deal through
a combination of debt and by issuing stock. The equity component of
the deal is expected to be about 25 percent, the company said.

Gregory Hayes, United Technologies’ chief financial officer,
said that in order to maintain its credit ratings, the company will
suspend its stock buyback program through next year and
significantly reduce it in 2013 and 2014, probably cutting it in
half to about $1 billion a year.

Moody’s Investors Service on Thursday affirmed United
Technologies’ investment grade ratings. It also placed Goodrich’s
investment grade ratings under review for possible upgrade.
The ratings service said Goodrich’s aerospace businesses are
good strategic additions to United Technologies’ existing lineup.
Despite the roughly $12 billion increase in debt to fund the deal,
the buyer’s finances should quickly return to the levels required
for its current ratings, Moody’s said.

Meanwhile, Standard & Poor’s Ratings Services affirmed its
investment grade rating for United Technologies, but revised its
outlook to “negative” from “stable,” saying if a weak economy
or defense spending cuts keep the company from paying off the debt
quickly, it may have to consider lowering its rating.

S&P also placed Goodrich’s ratings under review for a possible
upgrade, saying it expects United Technologies to either assume or
repay the company’s debt.

Fitch Ratings placed its investment grade rating for United
Technologies under review for possible downgrade, citing concerns
that economic conditions could slow repayment.

The combined companies are expected to post annual sales of
about $66 billion and the addition of Goodrich is expected to boost
United Technologies’ profits in the second year.

United Technologies backed its financial guidance for this year,
saying it still expects to post a profit of $5.35 to $5.45 per
share on $58 billion in revenue. Analysts polled by FactSet expect
a profit of $5.46 per share on $58.19 billion in sales.

Goodrich is expected to post 2011 revenue of around $8 billion.

     (Copyright 2011 by The Associated Press.  All Rights Reserved.)

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