UPDATE 2-EU investigates United Tech bid for Goodrich

Tue Mar 27, 2012 11:10am EDT

* EU regulator concerned about high market share

* Worry about possible price hikes for plane, engine makers

* EU decision due by Aug. 9

* Analyst sees possible asset sales by United Tech

* United Tech, Goodrich shares little changed

By Foo Yun Chee and Scott Malone

BRUSSELS/BOSTON, March 27 (Reuters) - EU antitrust regulators are taking a deeper look at a $16.5 billion bid by United Technologies Corp for aircraft components maker Goodrich Corp, a probe that may lead to the U.S. manufacturers selling assets to get approval for the deal.

United Tech unveiled its biggest-ever takeover in September. The deal would reinforce its presence in the civilian aerospace market. Goodrich parts are used on aircraft including Boeing Co's 787 Dreamliner and Airbus' A320neo.

The European Commission said on Tuesday it had opened an in-depth investigation after an initial assessment showed potential competition issues in the markets for engine controls and AC power generators, due to the companies' very high combined market share.

"The aviation equipment industry is already concentrated and is characterized by high barriers to entry," EU Competition Commissioner JoaquĆ­n Almunia said in a statement.

"We need to make sure that competition is preserved and incentives to innovate remain. We must also prevent a rise in input prices for aircraft and engine manufacturers as well as other aviation equipment suppliers," he said.

The Commission said it will decide by Aug. 9 whether to clear or block the deal.

United Tech Chief Executive Louis Chenevert earlier this month told reporters the company expected the review by the Commission to be a "substantial process."

A spokeswoman for United Tech, the world's largest maker of elevators and air conditioners, said on Tuesday the company had expected the move.

"The phase II in the EU is not surprising; it is part of the normal regulatory review process," said United Tech spokeswoman Maureen Fitzgerald. "We continue to work with the EU and other regulatory authorities and continue to expect a mid-year closing."

Goodrich declined to comment.

One analyst said he did not see any major risks in the regulatory investigation.

"It's a formality that has a potential to push out the proposed close date. I don't know that it is necessarily something that you have to be overly concerned with," said Daniel Holland, an equity analyst at Morningstar who follows United Tech.

"At worst, the companies may have to spin off a division to be sure that there are no areas of concern to the EU," Holland said. "The deal has a reasonable chance of success in terms of going through."

The Commission typically requires companies to divest assets in return for regulatory approval. It has occasionally agreed to licensing deals instead.

Shares of both companies were little changed following the announcement. United Tech was down 19 cents at $83.31 and Goodrich was off 6 cents at $124.89, both on the New York Stock Exchange.

The EU watchdog said it was also concerned that the removal of Goodrich as an independent supplier of fuel nozzles and engine controls could lead to higher input prices for engine makers competing with United Tech's engine subsidiary Pratt & Whitney.

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