Textron shares soar after takeover report

BOSTON Thu Apr 9, 2009 1:57pm EDT

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BOSTON (Reuters) - Textron Inc (TXT.N) shares were up 47 percent after a Kuwaiti newspaper reported that a consortium of Middle Eastern companies was closing in on a deal to buy the diversified U.S. manufacturer.

Al-Watan newspaper said in an unsourced report that a United Arab Emirates-Kuwait consortium was close to securing a deal to buy the world's largest maker of business jets, offering $21 a share. It did not identify the companies.

The New York Stock Exchange said in a statement it had asked Textron to "issue a public statement indicating whether there are any corporate developments which may explain the unusual activity" but that the company said its policy is not to comment on market rumors.

A Textron spokeswoman also declined to comment to Reuters.

The report comes in a week when Textron's beaten-down shares have climbed roughly 80 percent, a rally that started on Monday amid speculation that Lockheed Martin Co (LMT.N), the world's No. 1 defense contractor, or its smaller rival Raytheon Co (RTN.N) were possible buyers for the company.

Lockheed and Raytheon officials on Monday declined to comment on those reports.

"Compared with earlier press speculation that has focused on large defense contractors as potential acquirers of Textron, the interest from a Middle East consortium would appear to make more sense," Macquarie Capital analyst Robert Stallard wrote in a note to clients.

The Middle East is an important growth market for business jets where Textron's Cessna brand is well known, he said.

Textron shares were up $4.31 to $13.42 in afternoon trading on the New York Stock Exchange. Over the past year, they have fallen 84 percent, a steeper drop than the 55 percent decline in the Standard & Poor's capital goods industry index .GSPIC.

Given the pounding of the shares, management might have a hard time resisting serious takeover bids, an analyst wrote.

"Given the legacy of execution issues at Textron, high investor dissatisfaction with recent company performance and continued liquidity uncertainty, a legitimate takeover attempt will be hard to resist," wrote Citigroup analyst Jeffrey Sprague, in a note to clients.

According to the newspaper report, the consortium of buyers would plan to sell off Textron's military businesses -- Bell helicopter and Textron Systems, which makes armored vehicles. That could help to alleviate the national security concerns that could be triggered if a foreign buyer tried to buy a U.S. defense contractor.

Another question facing any potential bidder for all of Textron would be what to do with its troubled finance arm, which lost money last year. The Providence, Rhode Island-based company is dramatically scaling back that operation to focus on financing products it manufactures.

"A more obvious reason we do not believe any company would be interested in acquiring Textron is Textron Financial, which over the last year or so has been the primary cause of value destruction at the company, in our view, and remains a significant question mark for investors," Susquehanna Financial Group analyst Stephen Velgot wrote in a note to clients.

In February, Textron Chief Executive Lewis Campbell said the company would consider selling one of its core units if it needed to do so to protect cash flow, though he argued it would be unlikely that it would need to make such a drastic move.

In March, the president of United Technologies Corp's (UTX.N) Sikorsky helicopter unit said it would be "an interesting hypothesis" for his business to take over Textron's helicopter arm.

(Reporting by Scott Malone, additional reporting by Ulf Laessing in Kuwait, editing by Dave Zimmerman and Tim Dobbyn)

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