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EC opens extended probe of UTC's Goodrich purchase

by Renee Cordes | Published March 27, 2012 at 9:52 AM

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The European Commission on Tuesday, March 27, launched an in-depth probe into United Technologies Corp.'s $16.5 billion purchase of Goodrich Corp. amid concerns about competition in the markets for engine controls and AC power generators.

"The aviation equipment industry is already concentrated and is characterized by high barriers to entry," EU Competition Commissioner Joaquín Almunia said in a statement. "We need to make sure that competition is preserved and incentives to innovate remain."

United Technologies, which makes Pratt & Whitney aircraft engines, Otis elevators and Sikorsky helicopters, agreed last September to acquire Charlotte, N.C.-based Goodrich to expand its commercial aerospace activities ahead of an expected surge in new aircraft sales.

The Hartford, Conn.-based bidder formally notified the deal in Brussels on Feb. 20, which companies typically do after several months of informal talks with EC officials.

Regulators have given themselves until Aug. 8 to reach a decision in the case. During a routine investigation, they found that the transaction would lead to very high market shares in AC power generation, where Goodrich is the closest challenger to market leader UTC and would otherwise have been the most likely partner for companies looking to enter the sector.

Investigators also found that the transaction would create a concentrated market structure at a global level for engine controls, as well as potential problems for some Goodrich customers that compete with UTC's engine subsidiary, Pratt & Whitney. The preliminary investigation also raised concerns regarding competitors' access to spare and related goods from both UTC and Goodrich.

Tuesday's move comes three days after the Commission opened an in-depth probe into plans by Vivendi SA's Universal Music Group to buy EMI Group Ltd.'s recorded-music business, which is also due to be wrapped up by Aug. 8.

United Technologies said earlier this month that it plans to sell about $3 billion in assets and issue $1.5 billion in convertible notes to help fund its purchase.

Operations being shopped include Carpinteria, Calif.-based turbine manufacturer Clipper Windpower LLC; Canoga Park, Calif.-based rocket-engine business Pratt & Whitney Rocketdyne; and pump assets of Hamilton Sundstrand Corp. It is not clear if these asset sales would also allay competition concerns in addition to meeting funding requirements.

Analysts have estimated that the pump business could bring in more than $2 billion, with Tyco International Ltd., SPX Corp., Flowerservice Corp. and Pentair Inc. all seen as likely suitors. Rocketdyne is estimated to be worth about $500 million.

United Technologies, which met with investors in Las Vegas last week, had earlier said that it sees minimal overlap and expects to close the deal around midyear.

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