Investor risk with United Technologies disposal / spinoff of its Sikorsky asset says advisor The Edge, Future Spinoffs predicted

May 21, 2015, 05:46 ET from The Edge Consulting Group

NEW YORK, May 21, 2015 /PRNewswire/ -- According to The Edge Group, a specialist advisor of research intelligence to large value and activist investors, Sikorsky's low margin, takeover target business, together with the alternative option of avoiding an immediate heavy tax burden (on a ~$10bn buy out) make it an ideal spinoff candidate through an 89%/11% split spinoff, based on its 2014 revenues. However, reports suggest management are also looking to potentially sell the business.

"Breaking-up the elevator & air-con maker from the volatile helicopter aircraft unit could unlock value for both United Technologies and Sikorski investors alike, plus deliver new shareholders growth through M&A opportunities, but tax-free", says chief operating officer at The Edge, Ryan Mendy.

A taxing issue? United Technologies was first pitched to early investors back in 2013, being it a constituent of The Edge's notorious analysed list of predicted Spinoff candidates.

Mendy highlights that the management of United Technologies and its shareholders will face a notable tax liability on disposal. "On two counts, both strategy and valuation, our analysis proves investors would be much better rewarded spinning off Sikorsky or optionally do an RMT deal. If the board believe it's a quality business worthy of its dollar value today, they should carve out incentives correctly for the new management to grow business and sell it tax-free in two years' time at much higher levels for supportive investors rather than selling it now and being massively taxed for it".

With a potential bid value of ~$10bn, Sikorsky had sales of $7.5bn, operating profit of $219m and an operating margin of 2.9% in FY14 and has seen sales volatility in recent years due to a concentrated exposure to US DoD (Department of Defense) budgets.

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SOURCE The Edge Consulting Group