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Goodrich Corp, (GR), a Fortune 500 company catering to the Aerospace and Defense industry, is to be bought by United Technologies Corp. (UTX) for $127.50 per share in cash, which comes down to $18.4 billion, including around $1.9 billion in debt. The word of the deal was out last Wednesday (September 14), and it is pretty clear that the investors of Goodrich are apparently elated by the news, which shows in the 42.32% increase in its stock price.
"Goodrich delivers on all of our acquisition criteria. It is strategic to our core, has great technology and people, and strengthens our position in growth markets," said United Technologies Chairman and Chief Executive Officer Louis Chenevert. "We are very excited to bring the capabilities of two great companies together, making us more competitive and better able to provide value to both customers and shareholders."
The Chairman, President and Chief Executive Officer of Goodrich, Marshall Larsen definitely is happy with the return to the Goodrich investors in the process. "We are extremely pleased to have an agreement with United Technologies that delivers immediate cash value to our shareholders at a premium that reflects the strength of our business," said Larsen.
But Goodrich was a smart investment in itself, I must say. The net revenue has been increasing for the last five years, up to $7 billion in 2010 from $5.7 billion in 2006. Although there was a disruption in the middle in 2008, it can be attributed to the Great Recession at its peak then. In fact, its operating margin standing at 14.33% is much better than 10.81% of Triumph Group (TGI) and 8.52% of Honeywell International (HON). Its return on average equity (ROAE), at 18.14%, is pretty high, compared with 9.76% for Esterline Tech Corp (ESL) and 12.46% of HEICO Corp (HEI). To outline Goodrich, it seems to be a good move for United Technologies, since Goodrich was already a strong contender in the same industry.
If we look at the performance of United Technologies, it recorded net sales of $54.3 billion in 2010. The debt-to-capital ratio stands at 32% (pretty controlled!), but should go up since the acquisition is to be supported by new debt and equity issuance, with the equity providing for 25% of the money. Its EBIT margin of 15.6% is much better compared with the 10.85% of Northrop Grumman Corp (NOC) and 9.36% of Boeing (BA).
The best thing is the market diversification of United Technologies, with 39% of sales in the US, 26% in Europe and 20% in Asia Pacific. This should provide for a stable future for United Technologies, notwithstanding the fact that its share of 21% in military, aerospace & space might go up, with the acquisition of Goodrich. So, thumbs up to United Technologies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Source: United Technologies Acquiring Goodrich: What You Need To Know