DETROIT - United Technologies Corp. has again put its automotive supplier arm up for sale.
United Technologies Automotive Inc. is being shopped by investment bankers Goldman, Sachs & Co. But it may be split into three pieces to get the premium sought by its parent, according to participants in the planned sale.
As with a previous effort to sell the company, United Technologies is prepared to take UT Automotive off the auction block if bids are seen as insufficient, two investment bankers said.
The proposed sale is in its early stages but has attracted industry attention. Wall Street investment groups and U.S. and European automotive suppliers are expected to bid. Automotive News ranks UT Automotive as the 17th-largest supplier of original equipment parts to North America, based on 1997 sales.
Peter Murphy, a spokesman for the parent in Hartford, Conn., said the company does not comment on rumor and speculation regarding acquisitions or divestitures.
United Technologies' effort is the latest in a string of moves by conglomerates shedding automotive businesses. Cooper Industries Inc. and ITT Industries Inc. got out last year.
Industry analyst Eric Goldstein said automotive suppliers are under pressure 'to have a global reach, provide modules and to add more value - while reducing prices. It's a difficult formula.'
Conglomerates are choosing to redirect their capital to where they receive a better return, said Goldstein, of Bear, Stearns & Co. in New York.
AUTO BUSINESS TOO RISKY
United Technologies' core businesses, including Pratt & Whitney and Otis Elevator, enjoy double-digit profit margins. UT Automotive had a 6.1 percent margin for the first nine months of last year, up from 4.9 percent a year earlier.
United Technology's board has fretted about the risks inherent in the auto industry, a former UT Automotive executive said. They include the capital needs of Tier 1 suppliers and the pricing pressure wielded by automakers.
UT WANTS 'BIG PRICE'
The parent might find it difficult to find many buyers for a company as large and diverse as UT Automotive. It manufactures products ranging from sun visors to motors to switches for antilock brakes from 90 plants worldwide. Its original equipment sales were $3.0 billion in 1997.
A price of $1.84 billion for UT Automotive is in line with the average industry multiple of earnings being paid for profitable automotive suppliers, said David Strickler, an analyst with Bowles Hollowell Conner & Co. of Charlotte, N.C. Bowles Hollowell is not involved in the sale.
But United Technologies 'wants a big price' of about eight times earnings, said one of the investment bankers. That translates to about $2.27 billion based on UT Automotive's 1997 financial statements. It is a rich but obtainable premium, said Strickler.
Getting top dollar may require splitting UT Automotive into three parts, one of the investment bankers said. 'It will leave more potential buyers because individually the groups are more affordable,' he said.
Most attractive is the Interior Systems Group. The group, with estimated 1997 sales of $551 million, makes headliners, instrument panels and plastic trim and is enjoying a resurgence under UT Automotive President Scott Greer.
'Good suppliers are like lake front property,' said Craig Cather, president of CSM Corp., an Okemos, Mich., automotive forecasting firm. 'There are only so many left, especially interiors companies.'
In addition to interiors, UT Automotive has a motors and electronics group.
2ND ATTEMPT TO SELL
United Technologies tried to sell between 40 percent and 44 percent of UT Automotive in early 1994 through an initial public stock offering. The offering was pulled because of a downturn in the IPO market.
But UT Automotive is seen as a more attractive company today. Last year it won a contract worth an estimated $400 million to $500 million annually from General Motors to supply fully assembled plastic instrument panels for its new Delta car program beginning in 2002.
One investment banker associated with the deal said United Technologies picked a good time to sell. Financing a large acquisition is easier and cheaper during the first quarter, he said. That's when lending officers receive their annual commitment of money, and they are eager to get started.