Diversified conglomerates General Electric Co. (GE) and United Technologies Corp. (UTX) Thursday announced the signing of a definitive deal under which United Technologies will acquire GE's Security business for $1.82 billion.
The companies said that the transaction has been approved by the Boards of both companies. The deal closing is pending regulatory approvals.
GE Security, part of GE Technology Infrastructure and Headquartered in Bradenton, Florida, supplies security and life safety technologies through a commercial and residential applications portfolio. GE Security's products include fire detection and life safety systems, intrusion alarms, and video surveillance and access control systems. The business has eight manufacturing facilities and approximately 4,700 employees in 26 countries.
The Security business will become part of United Technologies' Fire & Security business, which is headquartered in Connecticut and led by William Brown, president, UTC Fire & Security.
The acquisition of the division would help United Technologies to add more than $6 billion in annual sales in the area, in order to expand in a sector that it estimates to be worth about $100 billion.
United Technologies expects the transaction to be earnings neutral in 2010, after restructuring and transaction costs. The company also anticipates that the cost synergies will make it accretive in 2011 and beyond.
Commenting on the deal, United Technologies President and Chief Executive Officer Louis Chenevert stated, "This acquisition enhances UTC Fire & Security's status as a leading franchise in the $100 billion global fire safety and electronic security industry."
"It strengthens our North America footprint, extends our capabilities and complements our existing fire and security businesses," Chenevert noted.
According to Charlene Begley, president and chief executive officer, GE Enterprise Solutions, which includes GE Security, the Security business required significant investment in its capabilities to evolve and better serve the security industry.
GE Security was put up for sale in July, and GE had hired JPMorgan Chase & Co (JPM) as its financial adviser, to find a buyer for the unit. Reports said in August that the potential buyers for the GE unit also included its rivals in the security sector such as Tyco International Ltd. (TYC) and Germany's Robert Bosch GmBH.
In April, Paris-based Safran SA (SAFRF.PK) has agreed to take over 81% majority stake in GE Security's Homeland Protection business for $580 million, with GE Security retaining the remaining 19%. This business focuses on explosives and narcotics detection and sells technology for airports.
GE acquired the Security division in 2005 when it purchased fire detection equipment maker Edwards Systems Technology from SPX Corp. for $1.4 billion. GE last year said that the attraction of the security division is its forecast for increased sales in emerging markets and new offerings that bundle video surveillance, alarms and fire systems. The company projected $3 billion in sales by 2011 at GE Security, higher than about $1.8 billion in 2007.
GE's manufacturing side has had a tough time with demand on the downhill due to the market recession. Last month, GE reported a plunge in third-quarter profit as the company's revenues declined 20% from last year, hurt mainly by the Capital Finance segment. The Capital Finance business' Commercial Lending and Leasing, Consumer and Real estate activities were hit by the economic woes. Net earnings attributable to the company for the quarter were $2.494 billion, compared to $4.312 billion in the prior-year quarter. On a per share basis, net earnings declined to $0.23 per share from $0.43 in the year-ago quarter. Quarterly revenues dropped 20% to $37.80 billion from $47.23 billion last year.
GE is also reportedly finalizing a bigger deal to spin off its media and entertainment arm NBC Universal to a joint venture controlled by cable operator Comcast Corp. (CMCSA). As per reports, the two companies have recently agreed to value the businesses at about $30 billion, and are in the process of ironing out the final details of the deal.
For the recently closed third quarter, United Technologies, the parent company of jet engine manufacturer Pratt & Whitney, Otis elevator, and Sikorsky aircraft, has reported a 17% year-over-year decline in profit, hurt by lower operating margins at five of its six business segments as well as an 11% decline in quarterly revenues. The Hartford, Connecticut-based company reported net income of $1.06 billion or $1.14 per share for the third quarter, compared with $1.27 billion or $1.33 per share in the prior-year quarter. Revenues declined to $13.38 billion from $15.09 billion in the same quarter last year.
GE is trading at $15.855, up $0.025, on a volume of 15.91 million shares.
UTX rose $0.171 and is trading at $67.141, on a volume of 853,355 shares.
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