Exclusive: Textron reviews options, but deal uncertain

NEW YORK/WASHINGTON Tue Jan 10, 2012 10:17pm EST

NEW YORK/WASHINGTON (Reuters) - Textron Inc (TXT.N), the maker of Cessna aircraft and Bell helicopters, is conducting a strategic review that could include options such as spinning off parts of the aerospace and defense conglomerate, sources familiar with the situation said.

About a month ago, activist investor Ralph Whitworth's Relational Investors had examined Textron as a potential target to advocate for a change in strategy, one of the sources said. That source was unaware whether Relational had bought a stake in the company.

It was also not immediately clear if Textron's strategic review resulted from the interest of an activist investor or was part of a regular business review. The sources did not expect the evaluation to yield changes in Textron's strategy in the near term.

The company, which has a market value of about $5.6 billion, has not held a process to formally hire any bankers, though it has a long-standing relationship with Goldman Sachs Group Inc (GS.N), the sources said.

Representatives for Textron said they do not comment on market speculation. Goldman Sachs declined to comment. Relational Investors did not immediately return calls for comment.

The past four years have been volatile for Textron, which has cut its staff by about a quarter and seen its shares lose more than 70 percent of their value. Textron shares, which traded as high as $74.40 in 2008, closed at $20.17 on Tuesday.

Chief Executive Scott Donnelly has fought to turn around the company, as each one of its major business lines have run into headwinds at different points in time.

Besides planes and helicopters, Providence, Rhode Island-based Textron also makes various defense products as well as automotive parts and golf carts. It also has a finance subsidiary.

The world's biggest maker of corporate jets has been struggling to turn around its Cessna division as the global economy remains weak, while its defense businesses face pressure from shrinking U.S. military budgets.

Some of its businesses, such as Bell helicopters, could be attractive to buyers if they are separated.

"There has been strong interest for the past several years in consolidation in the military helicopter market, and particularly involving Textron," said Jim McAleese, a Virginia-based defense consultant.

But sources said Donnelly has not shown an interest in the past in breaking up the company.

Many of Textron business units have a low tax base as they have grown within the conglomerate, which means selling them now would lead to a massive tax liability and make for a less attractive deal, the sources said.

The latest review, however, comes as U.S. diversified industrial conglomerates come under increasing pressure to break up into units, often under activist pressure.

Last year, Relational Investors for example pressured industrial conglomerate ITT Corp (ITT.N) to split up, and also urged L-3 Communications (LLL.N) to divest assets.

(Reporting by Soyoung Kim and Paritosh Bansal in NEW York, Andrea Shalal-Esa in WASHINGTON, additional reporting by Scott Malone in Boston; Editing by Bernard Orr)

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