Aircraft parts maker Honeywell International Inc (HON.N) said Tuesday it scrapped its $90.7 billion offer to buy rival United Technologies Corp (UTX.N), citing the company's unwillingness to engage in negotiations.
The move comes after United Tech rejected Honeywell's offer last week, saying any synergies from combining the companies would be outweighed by regulatory delays, required divestitures and customer concerns.
With another round of Honeywell merger talks behind it, the focus now turns to United Tech's ability to operate as a stand-alone industrial conglomerate that faces headwinds from multiple sides of its business.
"Now the pressure is on for UTC to create shareholder value," said Jeff Bialos, a law partner with Sutherland Asbill & Brennan and a former senior Pentagon official.
Honeywell said it strongly disagreed with United Tech's characterization of the regulatory and customer risks associated with a deal.
"We remain confident that the regulatory process would not have presented a material obstacle to a transaction," Honeywell said in a statement on Tuesday.
Analysts and industry executives said paths that United Tech can pursue to boost its stock include splitting its industrial and aerospace arms or pursuing its own acquisitions.
Reuters had reported Friday that United Tech CEO Greg Hayes does not intend to break up the company, but will instead focus on initiatives such as investment in its Pratt & Whitney turbofan engines. Its underperforming Otis elevator division is facing steep engineering and development costs as the company tries to refresh its product line.
United Tech makes everything from air conditioners to elevators and fire equipment, to a broad range of aerospace equipment, including tires, cockpits and engines. The company called Honeywell's decision to drop its pursuit an "appropriate outcome" given the regulatory obstacles and negative customer reaction.
"UTC will remain laser focused on our key priorities – program execution, innovation, cost reduction and disciplined capital allocation," the company said on Tuesday.
Shares of United Tech, the maker of Otis elevators, Carrier air conditioners and Pratt & Whitney jet engines, were down 2.8 percent in early trading on Tuesday, while Honeywell was up 3.2 percent.
A combination of the two would create a company with nearly $100 billion in revenue, responsible for a huge amount of equipment on commercial airliners, ranging from jet engines to cockpits and landing gear.
Major customers Airbus Group (AIR.PA) and Boeing Co (BA.N) weighed in last week, saying they did not support such a deal.
A merger would also have drawn scrutiny from the Pentagon, since the companies make parts for key weapons programs, including Lockheed Martin Corp's (LMT.N) F-35 program.
United Tech's shares have risen about 10 percent since Feb. 19, the last trading day before deal talks were first reported.
(Editing by Saumyadeb Chakrabarty and Nick Zieminski)