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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: dot com the radio plus mobile last and on your radio,

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Speaker 1: this is a Bloomberg business flash and I'm Karen Moscow

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Speaker 1: stocks are rising voice for a second straight weekly gain

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Speaker 1: after the S and P five hundred index are raised

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Speaker 1: a monthly decline. And this comes of its signals from

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Speaker 1: China's Central Bank that will act to bolster its economy

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Speaker 1: and its crude oil climbs. We check the markets every

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Speaker 1: fifteen minutes throughout the trading day. On Bloomberg. The S

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Speaker 1: n P five hundred up three tenths per cent or

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Speaker 1: six points in nineteen fifty eight down. John's Industrial Average

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Speaker 1: up three tenths percent or forty two points to sixteen thousand,

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Speaker 1: seven hundred thirty nine. The NAS decks a half per cent,

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Speaker 1: or twenty two points, to forty six oh four. Tenure

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Speaker 1: Treasury down twelve thirty seconds, the yield one point seven

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Speaker 1: five percent yield on the two year points seven six percent.

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Speaker 1: Nimex s crude oil up three percent or a dollar

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Speaker 1: three to thirty four ten a barrel Comex gold down

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Speaker 1: seven tenths per cent or eight dollars fifty cents to

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Speaker 1: twelve thirty thirty announced the euro a dollar oh nine

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Speaker 1: seven three the and one thirteen point for eight Honeywell International,

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Speaker 1: saying that a tie up with United Technologies would create

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Speaker 1: seventy two billion dollars and combined shareholder value. Part of

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Speaker 1: a February nineteenth presentation pushing for a deal that the

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Speaker 1: target company said was unworkable, Honeywell said the proposed offer

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Speaker 1: of a hundred eight dollars per share with lead to

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Speaker 1: cost savings of three and a half billion dollars in

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Speaker 1: four years, as it said it was seeking to re

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Speaker 1: engage with United Technologies on a possible transaction, and Hilton

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Speaker 1: Worldwide Holdings, the world's largest operator of hotel rooms, said

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Speaker 1: it will continue to pursue spinoffs of its hotel properties

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Speaker 1: and timeshare business to boost shareholder value. That's a Bloomberg

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Speaker 1: business flash Toom and Scarlett Karen. Thanks so much, folks.

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Speaker 1: Peter Armand joins us from Stern Energy Gleature right now

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Speaker 1: at these head of their aerospace and defense system. Peter

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Speaker 1: thrilled to have you on. Thank you so much on

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Speaker 1: an incredible morning to join us. My chart for Monday

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Speaker 1: is a twenty year trend on one of American's icons

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Speaker 1: ut X, and I don't understand A hundred eight my

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Speaker 1: center tendency twenty years back is a hundred and twenty

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Speaker 1: three dollars a share. A one standard deviation premium is

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Speaker 1: a hundred and forty eight dollars a share. In way

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Speaker 1: out stupid, it's two standard deviations a hundred and seventy

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Speaker 1: eight dollars a share. Why is Honeywell low balling this offer? Well,

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Speaker 1: I think it's it's it's initially I think probably the first,

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Speaker 1: the first of what I will be probably an initial offer. Uh,

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Speaker 1: if you look, I mean United Technologies in the last

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Speaker 1: few years has struggled. There is a incredible industrial business,

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Speaker 1: but they they've run into um a point where their

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Speaker 1: businesses are very mature and their margins are running at

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Speaker 1: peak levels, and so they have to go through restructuring

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Speaker 1: to kind of reset the bar and re engage growth.

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Speaker 1: And I think Honeywell seas an opportunity to try to

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Speaker 1: combine to businesses and take advantage of that. Is there

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Speaker 1: regulatory overlap? We've seen all sorts of different comments on

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Speaker 1: this three hundred twenty six thousand combined employees. I got revenue,

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Speaker 1: who's out Oh, I don't know, ninety eight billion or something,

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Speaker 1: give or take a couple billion. But what's the overlap. Yeah,

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Speaker 1: the overlap, UM, Initially, I think it's it's fairly significant.

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Speaker 1: It's in a couple of key areas in the aerospace side,

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Speaker 1: small aircraft and helicopter engines, auxiliary power units otherwise known

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Speaker 1: as ap u s, aircraft environment control systems, aircraft wheels

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Speaker 1: and bay breaks, and then the fire and security products

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Speaker 1: the ladder. There's plenty of competition for so the fire

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Speaker 1: security products, you could easily divest some of those and

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Speaker 1: it wouldn't be an issue. And I think they're they're

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Speaker 1: clearly is going to be some horse trading going on

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Speaker 1: around the aerospace assets about what they would divest and

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Speaker 1: satisfy regulators. Regulators is one thing. Customer resistance is another.

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Speaker 1: U t XS CEO has said earlier this week that

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Speaker 1: that would make a merger too difficult to get done.

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Speaker 1: What kind of customer resistance were were talking about here?

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Speaker 1: So you're talking about Boeing Airbus UH in particular, and

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Speaker 1: then probably the Department of Defense. UH, it's more probably

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Speaker 1: on the commercial side. Initially, UM, we've looked at the

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Speaker 1: the the key aircraft platforms, whether it's Bowings or airbus,

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Speaker 1: both of the kind of the narrow body side the

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Speaker 1: twenty airbus or the seven seven three fifty bulk new

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Speaker 1: platforms that are ramping. And if you do the analysis,

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Speaker 1: it looks like from a cost basis that this combination

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Speaker 1: and some of those platforms, the combination would result in

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Speaker 1: somewhere between seven and sevent of the total cost base.

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Speaker 1: So it's significant, significant, but it's not a deal breaker.

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Speaker 1: There are some competitors out there that have larger shares um,

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Speaker 1: so clearly there's a negotiation going on, and what you

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Speaker 1: could horse trade out, Peter, I meant with US astern

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Speaker 1: AG as we look at Honeywell U t X, Peter,

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Speaker 1: I'm looking at the Bloomberg terminal and U t X

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Speaker 1: is subpar across the entire income statement. But with that,

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Speaker 1: there's not much different. I've got nominal growth U t

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Speaker 1: X three FO. Honeywell does better, maybe it's five percent.

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Speaker 1: I've got eva DA they outperformed by two hundred basis points.

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Speaker 1: Where does ut X have to get better to defend

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Speaker 1: against everybody, including Honeywell. Do they have to do in

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Speaker 1: the middle of the income statement in expenses etcetera. Or

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Speaker 1: do they just have to do better revenue. Yeah, well,

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Speaker 1: unfortunately it's a little bit of both. They have they

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Speaker 1: have to uh cut, they have to go through restructuring,

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Speaker 1: so they lost some share with OTIS over the last

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Speaker 1: few years, and to hold margin instead, they now have

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Speaker 1: to you know, cut some pricing to uh so that's

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Speaker 1: going to hurt their margins order to get some volume back.

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Speaker 1: The same thing. They've got a you know, a very

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Speaker 1: strong franchise with Carrier, but they're running up against kind

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Speaker 1: of peak margin level and they and they're continuing to

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Speaker 1: look at ways to improve the cost structure there. And

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Speaker 1: then the on the Pratt and Whitney side, I mean,

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Speaker 1: they just have they have the benefit of having a

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Speaker 1: great new engine, but unfortunately it's really next decade story

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Speaker 1: before it starts generating a lot of income growth. Because

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Speaker 1: I think he's looking to build kind of the next

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Speaker 1: big industrial uh US to do. I think he wants

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Speaker 1: to do something where he sees enormous synergies, where there

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Speaker 1: is a margin a margin expansion story that could still

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Speaker 1: be in play when you look at the combination, and

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Speaker 1: I think you put the best in class of Honeywell's

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Speaker 1: operating system which has delivered tremendous share older values since

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Speaker 1: Dave Cody has installed it, and I think he looks

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Speaker 1: at there's an opportunity to do that with you too.

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Speaker 1: What does this mean for General Electric then, which is

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Speaker 1: putting all its eggs in one basket as an industrial company,

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Speaker 1: General Electric or the other other big industrials out there

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Speaker 1: that if this deal gets done, there can always be

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Speaker 1: in knee jerk reaction. I think General General Electric, which

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Speaker 1: we don't have a rating on UM, is on their

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Speaker 1: own path. They've obviously been cleaning up their own story

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Speaker 1: and investing a lot of the financial assets, so I

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Speaker 1: think that's a different story. But you know, clearly if

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Speaker 1: you saw this deal ultimately get done and it would

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Speaker 1: take probably well into UM, there probably would be a

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Speaker 1: mu jerk reaction if from a competitive standpoint, just because

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Speaker 1: you have a very strong offering. Here's a partial score,

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Speaker 1: honeywell twelve U t X six shareholder return. You say

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Speaker 1: this will be a lengthy process, Peter, that could extend

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Speaker 1: into before being resolved. Surely David Cody uh sees this

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Speaker 1: as well. Why now, why is he choosing to act now? Well,

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Speaker 1: I think he sees an opera a window here with

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Speaker 1: the United Technologies that frankly it's UM a very strong

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Speaker 1: industrial company, but they're going through a period where UM

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Speaker 1: three out of their four segments this year alone are

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Speaker 1: going to show negative EBIT growth. So and because of

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Speaker 1: the you know, headwinds that they're seeing. Some of that

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Speaker 1: is is self inflicted with a great new engine that

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Speaker 1: they're delivering and that's causing a drag for Pratt and Whitney,

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Speaker 1: but others is where they need to kind of restructuring

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Speaker 1: the business, whether it's OTIS or what they're seeing on

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Speaker 1: the aerospace system side. So UM, I think there's an

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Speaker 1: winning window here to see maybe if we put a

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Speaker 1: combination together. We we disussed some of the key assets

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Speaker 1: that ultimately this is a one plus one equal story.

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Speaker 1: What about getting shareholders on his side, Honeywell bringing over

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Speaker 1: some of UTX as shareholders. Are there any activists that

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Speaker 1: play or potential activists that play that could get in.

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Speaker 1: I don't see this being a near term activist story.

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Speaker 1: I think this is more about convincing UH United Technology

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Speaker 1: shareholders that there's real value here and trying to keep

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Speaker 1: what could be disappointment among the Honeywell shareholders who the

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Speaker 1: reality is historically this is not what they signed up for.

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Speaker 1: They signed up for what was a very strong, uh

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Speaker 1: clear messaging story uh five billion dollar acquisitions and less

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Speaker 1: continuing to tuck those in, improving the cost structure of

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Speaker 1: those deals, adding you know, the Honeywell kind of operating system,

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Speaker 1: and then seeing the benefit of accretion going forward. So

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Speaker 1: this is a deviation a game changer for that. And

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Speaker 1: and guess what, We're gonna have their Honeywell Investor Day

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Speaker 1: next Wednesday in New York and we're gonna get a

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Speaker 1: lot more about we'll get you back on and that

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Speaker 1: tell me the makeup. And let's just pick on U

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Speaker 1: t X. I mean, Judd Gregg is on the Senator

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Speaker 1: Greg on the Honeywell board. But tell me the quality

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Speaker 1: of the U t X board. I see Governor Whitman

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Speaker 1: of New Jersey on the board, Terry McGraw on the

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Speaker 1: board as well, and Alan Coleman on the board. Uh,

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Speaker 1: what's the quality that board? And do they tell the

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Speaker 1: management what to do? Good question? Well, I mean both

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Speaker 1: of these companies have tremendous boards. And I mention John Ferracci,

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Speaker 1: excuse me, I did, Yeah, And there's a background of

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Speaker 1: of other advisors, um, you know former executives United Technologies

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Speaker 1: who are certainly close to the story also, So I

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Speaker 1: think they'll have great counsel and it's just a matter

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Speaker 1: of whether they're satisfied, whether this is enough value being

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Speaker 1: created did and whether they're willing to uh deal with

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Speaker 1: the change and potential governance and having Honeywell run these

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Speaker 1: what are great assets that technologist, Peter, thank you so much. Well,

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Speaker 1: my people will talk to your people, so maybe we

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Speaker 1: can drag you on the show next week sometime after

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Speaker 1: the Honeywell meeting. Mr I meant is with stern aging lecture,

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Speaker 1: we thank him for his short term support. Today, Scott,

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Speaker 1: that was fascinating. I love what he said about this

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Speaker 1: is outside the box of what Honeywell shareholders would want. Yeah,

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Speaker 1: they didn't sign up for this, right, I mean they

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Speaker 1: were not looking for a year or two of lengthy process,

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Speaker 1: lengthy negotiations, asset sales and and back and forth with

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Speaker 1: regulators for any of this. Bloomer Radio Plus you got

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Speaker 1: the first look at my chart for Monday, which is

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Speaker 1: really interesting. It is it is the trend of ut

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Speaker 1: X in the valuations of the center tendency of a

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Speaker 1: two decade trend which you heard Mr Armand say he

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Speaker 1: thinks a hundred eight dollars a show airs a little brief,

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Speaker 1: a little early, and it would probably migrate higher if

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Speaker 1: they ensue to battle. I think Scarlet Food were produced

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Speaker 1: by y U N. Can follow you, our Global technical

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Speaker 1: director of Bloomberg Surveillance