Textron soars on acquisition hopes
By Justin Baer and Julie MacIntosh in New York
Published: April 9 2009 22:34 | Last updated: April 9 2009 22:34
Shares of Textron soared by 49 per cent amid speculation the industrial conglomerate could be broken up and sold to a consortium of Middle East and US investors.
Al-Watan, a Kuwaiti newspaper, reported on Thursday that a United Arab Emirates group was close to a deal to acquire Textron, whose businesses range from Cessna aircraft and Bell helicopters to E-Z-Go golf carts, for $21 a share, or more than $5bn. The buyers would then find a US company to take over Textron’s defence division, the paper said, citing unnamed sources.
The report captured the imagination of many investors who had pining for this very scenario since the credit crisis began to take its toll on Textron’s finance unit, which has originated loans for everything from Bell aircraft to vacation homes.
A company spokeswoman declined to comment on “market rumours.”
Textron rejected the NYSE’s request to issue a public statement ”indicating whether there are any corporate developments which may explain the unusual activity,” adding more weight to speculation that deal talks are underway - even if the would-be buyers are far from the Middle East.
“Textron is probably having exploratory discussions with a lot of parties,” one banker said.
Textron shares surged $4.45 to $13.56 on the New York Stock Exchange.
Facing mounting losses, Textron unveiled a plan in December to sell or liquidate most of the finance businesses unrelated to its own products, or roughly $7.9bn the division’s $11.4bn portfolio of managed receivables.
The company has also said they would not rule out selling some of its core businesses to help weather both a credit crisis, which has punished its finance arm, and a deepening recession that has sapped demand for its aircraft and industrial gear.
“While it’s hard to call, a takeout here would not be shocking, given the liquidity needs and management credibility issues at present,” Stephen Tusa, an analyst with JPMorgan Chase, wrote in a note to clients.
Mr Tusa also said the $21-per-share price “looks expensive,” noting he valued the industrial businesses at $12 a share. The finance division, he wrote, “could be worth negative $1.5-2bn.”
Industrial bankers have long held the view that there is no single buyer for Textron because of its incongruous mix of aerospace and defence assets, the struggling financial division and an industrial business that builds products including golf carts and tools.
”It’s not really a sensible strategic collection,” said one dealmaker.
Nevertheless some bankers wondered why Textron would want to hand itself to a consortium, rather than to retain control of its own destiny. While Textron is struggling against slowing demand for many of its products and posted a loss in the fourth quarter, it recently sold assets to raise $365m and has drawn down $3bn in credit lines to boost liquidity.
The also noted that any bid from a non-US entity could draw scrutiny from Washington, especially if a domestic partner does not step with a simultaneous bid to acquire Textron’s defence operations.
Rather than selling the whole company, bankers said Textron might be better-served to sell its industrial or defence units - or even just one key asset that could extract a decent price, such as Bell - allowing the rest of the company to survive as a better-capitalised entity.
Bell could attract broad interest from companies including Boeing, United Technologies’ Sikorsky, or Lockheed Martin, industry experts said.
Textron has been viewed as a potential private equity target for the past decade because of its disparate assets, but it would have difficulty drawing buy-out bids in this credit-strained climate.
Smaller pieces of the company could still draw interest, however, including the industrial unit that includes its golf-cart manufacturing operation, whose links to Augusta National Golf Club, host of the Masters tournament, could serve as icing on the cake for some private buyers. Its main rival, Club Car, was once owned by private equity.
Copyright The Financial Times Limited 2009
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