Sixth Consecutive Shareholder Suit Threatens To Interrupt UTC-COL Merger

Earlier in September, United Technologies (NYSE: UTX) managed to close the much awaited acquisition deal with aircraft parts manufacturer Rockwell Collins for nearly $30 billion, which includes $7 billion in net debt. However, since then, many concerns regarding the deal have been raised by customers and investors alike. While customers feel like the combined company would create a monopoly that could hurt their bargaining power, investors feel like they don’t have enough information on the deal to make an informed decision.

United Technologies has agreed to pay out about $140 per share in the merger. Per the agreement, each Rockwell Collins shareholder will get about $93.33 per share in cash, and the remainder in UTC common stock. The company hopes to fund the cash portion of the transaction partially through debt and the balance through cash on hand. The transaction is expected to close by Q3 2018, subject to approval of Rockwell Collins’ shareholders and other regulatory bodies.

Under the deal, Rockwell Collins and UTC’s Aerospace Systems segment will be combined to create a new business unit named Collins Aerospace Systems. The combined entity is expected to see many benefits. If all goes to plan, United Tech could see over $530 million in annual savings as early as year 4. Additionally, on a pro forma basis, the company is expected to see close to $23 billion in aerospace sales in 2017 alone.

That said, investors are still skeptical. Last week, lawyers filed the sixth shareholder suit in the U.S. District Court in Cedar Rapids. Much like the earlier suits, it does not ask for the court to overturn the proposed merger. Instead, it claims that both companies have left investors in the dark. Shareholders feel like the companies have not provided them with enough information to make an informed decision about the deal. The company has refused to comment on the suits filed so far, but this is not a point of concern.

One must keep in mind that most public mergers are subject to lawsuits. More often than not, these issues are resolved and the merger goes through unharmed. This is what we expect happening in this case as well. A date for the shareholder’s vote is not yet set. But the company hopes to schedule it in the first three months of the coming year. We can expect these suits to be settled well before that time.

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