United Technologies Corporation (NYSE:UTX) has rejected a bid from Honeywell, worth $90.7 billion, stating that the price was undervalued. UTX believes that the deal would be “irresponsible” to the shareholders. United Technologies and Honeywell International are both rivals in the aerospace industry. A merger between the two would have resulted in one of the largest companies in the US, with total annual sales of $100 billion. Added to this, the merger would have eliminated the healthy competition in the supply of aerospace products.
UTX stated that it had discussed a merger with Honeywell for several years, but the current regulatory environment means that either such a deal would be blocked or would become a target of regulatory delays. In either case, the deal would not be worth the effort. Consequently, the move could result in a rise in customer concerns and concessions, which would be unfavorable for the shareholders.
Honeywell on the other hand had been more than eager to merge with UTX, in a bid to create a company larger than Boeing or Airbus. As a result, there would have been a shift in the balance of power from the customer to the supplier. With a combined market share of the two companies, the merger would have allowed the two to effectively fight back pricing demands from customers. Both Airbus and Boeing have been recently pushing for pricing concessions, by the suppliers. Furthermore, the two companies are also encouraging smaller companies to merge, to be able to meet their demands, as the two ramp-up productions.
Honeywell is of the opinion that a merger could possibly save the two companies a total of $3.5 billion annually. However, some analysts believe that the figure is overstated. The two companies serve different areas of the aerospace supplies business, with only few areas overlapping.
United Technologies Corporation (NYSE:UTX) lost 0.42% of its share value to reach a close at $97.66, after having a trade volume of 14.65 million.