United Technologies (NYSE:UTX) announced recently that it will merge its building market related businesses – Otis elevators and escalators, Carrier heating, ventilation and air-conditioning (HVAC) systems and building fire and security solutions from brands that include Kidde and Chubb – into a single business unit. 
The company contends that this combination will help it realize inherent synergies of these businesses that essentially sell to and service the same set of customers – new constructions and existing buildings. We figure this reorganization will especially help United Technologies (UTC) in new commercial and residential constructions, where it could pitch integrated solutions that include elevators, air-conditioners, ventilation systems, fire prevention systems and security solutions. Such an offering will provide UTC with a competitive advantage that very few companies can match globally at present. While announcing the integration, UTC also emphasized that it was seeing greater demand for integrated building systems and that this combination would allow it to accelerate the development of more integrated building solutions and technologies.
The combined unit, called UTC Building & Industrial Systems, will have $29 billion in annual sales and will become the largest segment of UTC.  The company’s other major business interests align with the global aviation industry where UTC manufactures Pratt & Whitney aircraft engines, Sikorsky helicopters and aviation components.
We currently have a stock price estimate of $116 for UTC, around 5% ahead of its current market price.
Reorganization Aimed At Alignment With Building And Aviation Industries
The integration of UTC’s building businesses comes close on the heels of its large scale reorganization that took place over the past couple of years. The company under CEO Louis Chenevert sought to align its interests with two global markets – building and aviation systems. Through this alignment UTC seeks to fully tap the global trends of urbanization and growing commercial aviation demand.
As part of this reorganization focused at building and aviation markets, the company last year completed the $18.3 billion (including debt) acquisition of Goodrich, one of the world’s foremost aviation component manufacturers and increased its stake in International Aero Engines (IAE) which produces the V2500 aircraft engines for 150-seat single aisle commercial airplanes. Through these two transactions and a few other smaller acquisitions and divestitures, UTC strongly established itself in the global aviation supply chain. Today, the company sells its Pratt & Whitney aircraft engines and aviation components like landing gears, wheels, brakes, actuation systems, etc. to all major aircraft manufacturers including Boeing (NYSE:BA), Airbus, Bombardier and Embraer.
During this reorganization, UTC also sold off its businesses that didn’t fit in with its strategic alignment. As such the company divested many businesses over the past couple of years including a wind turbine business (Clipper Windpower) and rocket engine business (Rocketdyne). We figure this integration of building businesses into a single unit is UTC’s last major measure in reorganization aimed at aligning interests with building and aviation industries.Notes:
- Geraud Darnis to lead new UTC Building & Industrial Systems organization, September 23 2013, www.utc.com [↩] [↩]