William Blair & Company Analyst Nick Heymann says divestitures are increasing in the aerospace & defense sector. For instance, United Technologies Corporation (UTX) is selling Sikorsky to Lockheed Martin.
“So we’re starting to see a tremendous amount of divestitures of businesses that simply are facing perhaps an extended period of challenge, like Sikorsky as it awaits the next-generation replacement for the Black Hawk, the Light Attack Helicopter that won’t enter production until perhaps the early or middle part of next decade,” he says.
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However, Heymann says that even when the net proceeds from the sale of $6.2 billion are used to reduce UTC’s share count, the company is still going to end up with a roughly 20% dilution on the $0.45 of EPS that Sikorsky was expected to contribute to UTC next year. Heymann says that highlights another change in the role of M&A for multi-industrial companies.
“Divestitures are increasingly unable — despite a very strong valuation market — to increase shareholder value in the near term,” he says.
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