The three-way split of United Technologies is emblematic of a trend towards specialisation rather than diversification in industrial manufacturing.
The American industrial conglomerate, which manufactures products in numerous areas, will split its portfolio of businesses into three independent companies: United Technologies, Otis and Carrier, focused on aerospace, elevators and building, respectively. This includes separating Otis, its elevator and escalator business, from Carrier (formerly Climate, Controls & Security), which provides HVAC, refrigeration, building automation, fire safety and security products.
The split is part of an ongoing trend in industrial manufacturing, but also unique in that United Technologies, with a market cap of more than $102 billion, will be one of the biggest companies ever to divide itself into three. Formed in 1934, United Technologies for decades pursued a strategy of growth and broad diversification, as did many other industrials. Times have changed. More recently it “struggled to make the conglomerate model produce the same kind of financial outcomes,” said Carter Copeland, an analyst with Melius Research. “Separating allows them to focus on what each business needs to do to be successful on its own.”
Other global industrial sector giants, including DowDuPont, Honeywell and General Electric, also plan to divest major divisions to become more focused on stronger lines of business. The trend is driven in part by investors, who “assign more value to the parts of these companies separately than to their sum”, according to Reuters. Two activist hedge funds, Third Point LLC and Pershing Square Capital Management LP, had specifically called on United Technologies to split, and it was apparent for most of this year that CEO Gregory Hayes was amenable to the idea.
As many expected, the breakup moved forward as soon as United Technologies completed its $30 billion acquisition of aerospace firm Rockwell Collins. The acquisition gave United Technologies the scale to build a standalone company, Collins Aerospace, from the combination of Rockwell Collins and its UTC Aerospace Systems unit. United Technologies itself will be comprised of Collins Aerospace and Pratt & Whitney. The latter unit is one of the “big three” aero-engine manufacturers, along with General Electric and Rolls-Royce.
Hayes will continue in his current role as Chairman and CEO of United Technologies after the separation, which is expected to be completed by 2020.