United Technologies (UTX) will explore spinning off its Sikorsky helicopter unit, in the first major move by the company’s new chief executive officer to overhaul the U.S. conglomerate’s portfolio of businesses.
The company’s board authorized the review, which also could include a sale of the maker of Black Hawk helicopters. Sikorsky had $7.5 billion in sales last year. The review is expected to finish before the end of the year.
Sikorsky’s fit with United Tech, which had $65 billion in overall sales last year, has been long debated on Wall Street. The potential split is the first major strategic move under Chief Executive Officer Greg Hayes, who was elevated in November after previously serving as finance chief.
The company’s portfolio review found that “while Sikorsky is a great helicopter company, it probably didn’t fit into the UTC portfolio,” Hayes told reporters.
Hayes said the company was very comfortable with its other businesses, which include Pratt & Whitney jet engines, Otis elevators and Carrier climate control systems. Splitting apart its aerospace and commercial building segments would not create much value, he said.
The new CEO is set to discuss the decision at United Tech’s highly anticipated investor day on Thursday in New York.
Sikorsky did not match up with the rest of the company on several fronts, Hayes said. Its margins of 10% lagged the target of at least 15% for UTC’s businesses.
While UTC wants to capitalize on growth in commercial aerospace and urbanization in emerging markets, Sikorsky is primarily a military contractor, with the U.S. Department of Defense representing two-third of sales.
United Tech shares have climbed 7% since Hayes was named CEO, compared to a 1% decline for the S&P 500 index.
The Sikorsky move comes as many diverse manufacturers such as General Electric (GE) have taken hard looks at their businesses to determine best strategic fits.
While the focus is on spinning off Sikorsky, Hayes said acquisition interest might come from companies in the United States, or Europe.
A standalone Sikorsky could be an attractive takeover target for Boeing (BA) or Textron Inc, RBC Capital Markets analyst Robert Stallard said in a recent research note.
Hayes said the company had spoken to government officials in Washington who believe a standalone Sikorsky would be a viable supplier.