No one was surprised when United Technologies (UTX) announced its takeover of Rockwell Collins (COL) last week. After all, a deal between the two companies had been rumored for months. By the time the official news came out, there had been plenty of time for the market to evaluate a potential merger.
The advanced warning of this merger made the market’s reaction all the more striking. UTX dropped 6% the day the deal was announced as investors balked at the $140/share price tag. The market clearly does not believe COL can generate the synergies UTX needs to create value with this acquisition, and looking at the numbers we have to agree.
Simply put, the price UTX will pay for this acquisition – which comes to ~$33 billion when accounting for all forms of debt and unfunded pension liabilities – makes it almost impossible for the deal to create long-term value for shareholders.
