UTC chief sees possible deal between Otis and German elevator business
But CEO says finishing pact will be complicated
Otis Elevator could enter talks for a deal with Thyssenkrupp AG’s elevator business that’s being spun off from the German conglomerate, but a tie-up won’t happen soon and would be complicated, the chief executive officer of United Technologies Corp. said Tuesday.
UTC is spinning off Otis and Carrier, t he manufacturer of heating and cooling equipment, as t he Farmington conglomerate bears down on the growing and lucrative aerospace and aviation business.
At an industry analysts’ conference in Coral Gables, Fla., CEO Gregory Hayes said discussions for an unspecified deal between Otis and Thyssenkrupp is possible, but hammering out an agreement would be difficult.
“We were surprised I guess as everybody else that they’re going to spin out the elevator business because that is the cash cow of TK,” he said, referring to Thyssenkrupp by its stock symbol. “Obviously, we’d be interested in a potential deal there, but very, very difficult to do. Impossible to do right now.”
If Thyssenkrupp goes through with its initial public offering and Otis is “spun out” as a separate company, Hayes said he would “fully expect that they would start having discussions after that process is complete.”
“It makes a lot of sense. I think you would see major divestitures required, especially in the U.S. and I think South America as well.”
Hayes said t he Farmington-based Otis as a standalone business would be “much more capable of pursuing” a deal with Thyssenkrupp than as part of UTC.
Analyst Nicholas Heymann of William Blair said a deal would happen only after spinoffs are complete and would require divestitures to satisfy regulators’ antitrust concerns.
“It will require a lot of surgical adjustments of portfolios,” he said. “It’s going to take a long while.”
Hayes “basically said, ‘It’s something for the new guys to figure out,’ ” Heymann said.
Bloomberg News said ThyssenKrupp’s Elevator Technology unit could be valued at about $16.8 billion.
In the last four years, UTC has invested about $750 million at Otis in new systems, productivity, internet of things tools and other equipment and services, Hayes said. “Much of that we have not yet seen a payback on,” he said.
Otis posted $12.9 billion in revenue last year, up from $12.3 billion in 2017. The elevator maker has been tripped up in China, its biggest market, as the Asian nation’s economy slowed, putting the brakes on high-rise construction.
Asked for a “progress report” on Otis in China, Hayes, said, “I think there’s one word that comes to mind: better. Still a long way from where we were.”
Over the last year and a half, UTC has “seen stabilization” as profit margins and backlog of orders improve, he said.
Hayes said UTC will be “operationally ready” to separate Otis, Carrier and its aerospace businesses on Dec. 31.
“Everything will be in place by the end of the year to run these businesses as stand alone,” he said.