Canada's CIBC completes $5 billion PrivateBancorp buy
TORONTO Canadian Imperial Bank of Commerce has completed the $5 billion acquisition of Chicago-based PrivateBancorp , which will help it diversify from its domestic market, it said on Friday.
NEW YORK United Technologies Corp (UTX.N) aims to sell three small units to raise about $3 billion in cash that the diversified U.S. manufacturer said would allow it to avoid issuing new common shares immediately to fund its largest-ever acquisition.
The world's largest maker of elevators and air conditioners is putting its Rocketdyne and Clipper Windpower and some of its Hamilton Sundstrand industrial businesses on the block, hoping to sell them by the end of the year and to use another $3 billion from its balance sheet to help pay for Goodrich Corp GR.N.
"We had contemplated not using any cash for this deal," Chief Financial Officer Greg Hayes said at a meeting with analysts and investors. But when the company in September revealed its plans to sell up to $4.6 billion in shares to fund the $16.5 billion takeover, "nobody liked" the idea, he added.
The Hartford, Connecticut-based company plans to issue $2 billion to $3 billion in short-term debt, $6 billion to $7 billion in long-term debt and $1.5 billion in convertible notes in the acquisition.
The company believes the current low-interest rate environment makes this an opportune time to sell the units, which collectively generated $2.4 billion in 2011 revenue.
"If you're ever going to sell that business, now is the time," Chief Executive Louis Chenevert told reporters after the meeting. "If the deal doesn't come together where it's basically a high price, we're going to keep the business."
United Tech expects to sign contracts to sell the three units by July, but does not expect to close the sales before completing its Goodrich purchase in the second quarter.
Taking on some debt to prevent diluting the shares may be a safe bet for investors, said Peter Klein, senior portfolio manager at Fifth Third Asset Management in Cleveland, Ohio.
"If you can get that debt on the books when interest rates are at what look like historic lows, that ought to get paid off pretty quickly," Klein said. "I don't think it's going to be a big issue for them."
TOUGH START TO YEAR
Several executives repeated the company's recent warnings that the first quarter had been tough, with Chinese orders for building systems like elevators below expectations.
Among them was Otis President Pedro Baranda, who confirmed the unit's full-year growth forecast, but added: "We see more risk to this guidance today than we did in December ... We expect the second half of the year to be better."
Those warnings have prompted analysts to lower their per-share profit forecast for the quarter. Wall Street now looks for earnings of about $1.18 per share, down from a $1.25 forecast at the end of December, according to Thomson Reuters I/B/E/S.
Factoring out one-time items such as an expected tax benefit, first-quarter profit will be roughly flat with the prior-year level, Hayes said.
Including Goodrich and factoring out the units now up for sale, United Tech expects 2012 earnings per share to come in at $5.30 to $5.50, flat to up 4 percent from 2011, with revenue up about 10 percent to a range of $61 billion to $62 billion.
By contrast, fellow industrial General Electric Co (GE.N) looks for "double-digit" profit growth this year and Honeywell International Inc (HON.N) forecasts a 5 to 11 percent rise in per-share earnings.
Shares of United Tech, which makes Pratt & Whitney jet engines, Otis elevators and Carrier air conditioners, closed up 8 cents at $86.89 on the New York Stock Exchange.
'WE'LL DELEVERAGE QUICKLY'
United Tech expects to pay less than a 2.7 percent combined interest rate on that debt, Hayes said.
"We'll deleverage quickly," Hayes said. "We'll get back to a solid rating by 2014."
United Tech was less than enthusiastic about one of the businesses it plans to divest - Clipper, which it bought out in 2010 after first taking a minority investment and then seeing it run into a cash crunch.
"We all make mistakes," Hayes said of that deal.
Rocketdyne makes engines for rockets used in satellite launches, Clipper Windpower makes wind turbines and the Hamilton Sundstrand units make pumps and other industrial components.
Determining how many shares to issue has been a balancing act for United Tech. Chenevert in December said he hates issuing new shares, in no small part because doing so reduces the per-share earnings figures that Wall Street watches closely.
At the same time, if the company pays out too much of its cash or took on too much debt to fund the deal, it could imperil its credit rating. Moody's Investors Service last month cut its outlook on United Tech's "A2" debt rating to "negative" from "stable," citing its reluctance to sell shares.
Keeping a high rating is important because United Tech needs daily access to the commercial paper market, where companies borrow cash for short periods of time to cover operating expenses, Hayes previously said.
United Tech has historically made a steady stream of small acquisitions, but plans in the future to focus on deals of $1.5 billion to $2 billion, in part because doing fewer, larger deals encourages better management focus on them, Chenevert said.
"If you do a transaction of $100 million or $500 million dollars, it does not move the needle," Chenevert said. "If you do a transaction of $1.5 billion to $2 billion, it starts to move the needle for the company."
(Reporting By Scott Malone; Editing by Phil Berlowitz, Gerald E. McCormick, Matthew Lewis, Gary Hill)
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