WASHINGTON — Dueling SEC filings by Honeywell and United Technologies Corp. on Feb. 26 could point to a possible hostile takeover attempt.

Honeywell made public details of its Feb. 19 offer to UTC for a total of $90.7 billion, a combination of $35.8 billion in cash and $54.9 billion of Honeywell shares. This represents a 22 percent premium above UTC's share price, Honeywell argued. In an 11-page Power Point presentation summarizing its offer, Honeywell suggested a merger would create $3.5 billion in cost synergies for the new entity, which would produce a projected $97.1 billion in annual sales.

Shortly thereafter, UTC posted a letter from CEO Gregory Hayes on its website, with its own analysis attached to its 8-K filing.

UTC and Honeywell have held on-and-off discussions for years, he wrote, but the changes in the regulatory environment in 2015 led UTC to conclude that such a merger would be blocked outright.

"[E]ven if it were possible to complete a transaction, the regulatory delay, required divestitures, and customer concerns and concessions would ultimately destroy shareholder value far beyond any synergies," he wrote.

Additionally, Honeywell's offer "grossly undervalues" UTC, and overstates potential synergies, he wrote.

Jeff Bialos, a partner at Sutherland Asbill & Brennan who specializes in mergers and acquisitions and previously served as the Pentagon's deputy undersecretary of defense for industrial policy, said it is extraordinary to see this kind of public discussion of an acquisition offer in the defense market.

"This is an aggressive act by Honeywell to put this on the table in this manner," he said. "It could be a prelude to some sort of a takeover."

Over the course of the week, UTC's shares rose from $88.23 a share to $97.69 at the close of business on Friday. Honeywell's shares dropped slightly from $108.42 to $103.03 over the same period.

With $13.02 billion in 2014 defense revenues, UTC ranked 8th in Defense News' most recent rankings of the Top 100 global defense firms. UTC's overall 2014 revenues were $65.1 billion.

Honeywell, with $4.754 billion in defense revenues, ranked 16th. Overall, it had $40.3 billion in revenues in 2014.

Bialos said that in his opinion, UTC's view of possible objections from the Defense Department is overstated.

"What DoD has said is it would not look favorably on mergers of top tier defense firms, and by that it's focused on prime contractors," he said. "In my view, that guidance doesn't directly apply to large defense firms that are largely subsystem providers."

UTC does have extensive firsthand experience with anti-trust regulators, having sold Sikorsky Aircraft to Lockheed Martin last year. In 2013, it sold its Rocketdyne unit to GenCorp., and it acquired Goodrich Corp. the previous year.

A Honeywell-UTC merger would likely trigger a significant anti-trust investigation, Bialos said, but that does not automatically mean the deal would be blocked.

"The devil is in the details. The challenge is whether the overlaps that exist, horizontal overlaps, would create too-consolidated an industrial base in core areas and eliminate too much competition. That's something that one can only know for sure based on a full review," he said. "One firm seems to think they can get through it, and the other doesn't. Or the other may not want to."

Email: aclevenger@defensenews.com

Twitter: @andclev

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