United Technologies Ditches Conglomerate Model

The company is spinning off its Otis and Carrier businesses in a "pivotal" move to "drive sustained growth."
Matthew HellerNovember 27, 2018

United Technologies announced Tuesday it will split up into three companies, bowing to investor disenchantment over the conglomerate model of doing business it had followed for decades.

The breakup will focus United Technologies on its aviation business, with elevator manufacturer Otis and the Carrier air-conditioning division operating as standalone entities.

4 Powerful Communication Strategies for Your Next Board Meeting

4 Powerful Communication Strategies for Your Next Board Meeting

This whitepaper outlines four powerful strategies to amplify board meeting conversations during a time of economic volatility. 

United Technologies’ aviation assets include jet engine maker Pratt & Whitney and newly acquired parts maker Rockwell Collins.

“Our decision to separate United Technologies is a pivotal moment in our history and will best position each independent company to drive sustained growth, lead its industry in innovation and customer focus, and maximize value creation,” CEO Gregory Hayes said in a news release.

Gregory Hayes

Since it was founded as United Aircraft in 1934, United Technologies had built itself into one of America’s largest industrial conglomerates. But as CNN reports, the company’s stock had recently been “treading water as investors shy away from stocks of conglomerates in favor of buying more focused companies.”

Activist investors Dan Loeb of Third Point and William Ackman of Pershing Square Capital Management had been pushing for United Technologies to break up into three companies.

“The company has been more hampered by its model than it’s been helped,” said Jim Corridore, an analyst at CFRA Research, told CNN. “It makes a lot of sense for United Technologies to break itself up.”

Other conglomerates have been following a similar path, with Honeywell announcing plans to separate its thermostat and security division from its transportation systems business. General Electric, which accumulated a mountain of debt through acquisitions, is in the process of shedding its railroad and healthcare divisions as well as its oil-and-gas business.

Hayes said United Technologies’ board came to realize its company’s three businesses could survive on their own.

“There was no cross-subsidy required, and that was, I think, the magic moment when the board said that we don’t really need to be together,” he told CNBC in an interview. “The question is, should we be together?”

The breakup is being structured as a tax-free spinoff of the Otis and Carrier businesses to existing shareholders.