GE sells security arm to United Tech for $1.82 billion

By Scott Malone

BOSTON (Reuters) - General Electric Co (GE.N) will sell its security business to United Technologies Corp (UTX.N) for $1.82 billion, a deal that marks a step in the largest U.S. conglomerate's portfolio streamlining.

GE, which stumbled financially last year in the face of a severe economic downturn, is in the process of pruning its diverse stable of businesses, including trimming its GE Capital finance arm and considering the possibility of taking on another partner for its NBC Universal media arm.

For United Tech, the world's largest maker of elevators and air conditioners, the deal greatly boosts its presence in the U.S. security market -- selling products like security cameras and fire-detection systems for homes and offices.

The purchase will be neutral to diversified U.S. manufacturer United Tech's 2010 earnings, after restructuring and transaction costs and will add to earnings in 2011 and beyond helped by cost cuts, United Technologies' Chief Executive Louis Chenevert said in a statement on Thursday announcing the transaction.

The security business is on track to generate about $200 million in earnings before taxes, interest, depreciation and amortization on $1.2 billion in revenue this year, United Tech disclosed in slides on its Web site.

GE Security, part of GE Technology Infrastructure, has about 4,700 employees in 26 countries.

Fairfield, Connecticut-based GE could sell off businesses generating $25 billion to $30 billion in revenue -- about one-fifth of its operations -- over the next two to three years, Bernstein Research analyst Steven Winoker wrote in a recent note to clients.

"While the sale reinforces that some of the company's longer-term growth investments have not worked out as anticipated, we think that point is moot for now, overshadowed by the cash that comes in the door, which the company can contribute to GE Capital," J.P. Morgan analyst Stephen Tusa wrote in a note to clients.

'GOOD FIT' FOR UNITED TECH

Analysts said the move looked to be a good one for Hartford, Connecticut-based United Tech, which has been building its presence in the security sector over the past decade through a series of acquisitions.

"We see the business as a good strategic fit for UTC Fire and Security; the company had very little exposure to the North American Fire & Security market," Deutsche Bank analyst Nigel Coe wrote in a note to clients.

Ari Bousbib, who serves as president of United Tech's commercial companies -- Carrier air conditioners, Otis elevators and the fire and security arm -- said United Tech aimed to expand the business model of the security businesses it was buying from GE to include a stronger service element, not just product sales.

It also plans to close about 40 percent of its branches, so that each location will provide fire, security and fire-extinguisher services, rather than having separate locations for each business.

United Tech executives have repeatedly told investors this year that they aimed to take advantage of the worst recession the United States has experienced since the Great Depression of the 1930s to find takeover targets at attractive prices.

GE shares were down 5 cents at $15.78, while United Tech's were up 28 cents at $67.25 on the New York Stock Exchange.