Security

What Now for Honeywell & UTC as Proposed Deal Fails to Get Off the Ground?

It’s been widely reported that Honeywell and UTC have been exploring the possibility of a merger. However it seems UTC rejected Honeywell’s $90 billion offer on grounds that the deal will never win US and EU antitrust approval. Since then Honeywell have made a vigorous counter statement insisting that regulatory obstacles need not prevent the merger suggesting it may still pursue UTC. Is this the only reason UTC are so far playing hard to get? Or are there other mitigating circumstances... In our recent article “How Will the Johnson Controls / Tyco Deal Play Out?” we suggested that the JCI / Tyco deal could well be challenged and amongst potential suitors we suggested that companies like UTC could now be analysing this merger both as a threat to their existing Fire and Security Operation or an opportunity to buy and significantly increase their market share. The irony of the proposed UTC deal may have be […]

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It’s been widely reported that Honeywell and UTC have been exploring the possibility of a merger. However it seems UTC rejected Honeywell’s $90 billion offer on grounds that the deal will never win US and EU antitrust approval. Since then Honeywell have made a vigorous counter statement insisting that regulatory obstacles need not prevent the merger suggesting it may still pursue UTC.

Is this the only reason UTC are so far playing hard to get? Or are there other mitigating circumstances...

Merger

In our recent article “How Will the Johnson Controls / Tyco Deal Play Out?” we suggested that the JCI / Tyco deal could well be challenged and amongst potential suitors we suggested that companies like UTC could now be analysing this merger both as a threat to their existing Fire and Security Operation or an opportunity to buy and significantly increase their market share.

The irony of the proposed UTC deal may have be lost on Honeywell, who badly burnt their fingers when their proposal to merge with GE was finally turned down in 2005 by the Court of First Instance ("CFI"). The court upheld the judgment of the European Commission’s 2001 decision prohibiting the proposed merger.

The European Commission turned this down on the rather controversial issues of vertical and conglomerate effects including bundling. The CFI held that the Commission had not sufficiently proved its case. However thhe CFI saved the Commission’s face by affirming on the narrow grounds that, based purely on an analysis of horizontal overlaps, the Commission had correctly found that the merger would increase GE’s already existing dominant position in the markets for jet engines for large regional aircraft, engines for corporate aircraft and small marine gas turbines.

UTC does not hold such a strong position in jet engines of commercial aircraft as GE so it should stand a better chance of being accepted. However forced marriages very rarely work so well.

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Honeywell and UTC will move on. So will either of these companies gatecrash the merger between Johnson Control and Tyco? We believe that if UTC don’t take this opportunity they may decide to sell off their Fire and Security business together with Building Controls. They have made little impression in these markets over the last ten years and yet are very strong competitors in all other building technologies.

Now they may have another option to strengthen their building technology operation... and that is to buy Honeywell's Building Solutions business. The Wall Street Journal says Honeywell has hired Goldman Sachs Group to work on the sale, which has been ongoing for about three months. The business unit is worth between $3 and $4 billion providing Integrated Building Management Systems.

Our recent report on The Physical Security Business 2015 to 2020; Access Control, Intruder Alarms & Video Surveillance discusses M&A in Fire and Security in more depth - http://memoori.com/portfolio/physical-security-business-2015-access-control-video-surveillance/.

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