Ackman Joins Loeb in Push to Break United Technologies Apart
(Bloomberg) -- The calls for a United Technologies Corp. breakup are getting louder.
Activist investor Bill Ackman backed the idea Tuesday as his Pershing Square Capital Management detailed a $245 million stake in the maker of jet engines, elevators and air conditioners. His pitch to split the company three ways echoed recent comments from another high-profile shareholder, Dan Loeb, whose firm revealed an $893 million holding.
United Technologies “is one of the last remaining conglomerates,” Ackman said during a conference call. “Other than Berkshire Hathaway, conglomerates have not had a great track record.”
The remarks raise the pressure on United Technologies, which has a market value of almost $100 billion, ahead of a portfolio review slated for later this year. Chief Executive Officer Greg Hayes has pledged to consider all options, including a possible breakup, to boost shareholder value.
While the industrial giant has strong business units, they each trade at a discount to peers, Ackman said. Splitting the aerospace operations, Otis elevator division and climate-controls business into separate entities would allow them to thrive, he said.
“The management here has put together three outstanding businesses and built them to significant scale,” Ackman said. “We think each business would trade at a very attractive valuation and, more importantly, operate more effectively as independent companies.”
A United Technologies representative declined to comment.
Pershing Square disclosed Tuesday that it owned 1.94 million shares of United Technologies at the end of the first quarter, or roughly 0.2 percent of the company, according to a regulatory filing. While the size of the stake could have changed since March 31, it was valued at $245 million at the time. Third Point said it had 7.1 million shares at the end of the period, or a 0.9 percent stake, worth about $893 million.
United Technologies fell less than 1 percent to $124.55 at the close in New York. The shares advanced 3 percent over the last 12 months, trailing the 13 percent gain in the S&P 500 Index.
Hayes surprised investors in February when he said a three-way split might be needed. He said the board will explore options after the expected closing this year of its $23 billion acquisition of Rockwell Collins Inc., which would be one of the biggest aerospace deals in history.
Still, he has also cautioned that a major portfolio change could generate considerable one-time costs.
Loeb’s Third Point said in a letter to investors this month that having such disparate businesses under one corporate roof has led to “poor management execution” and a lagging share price. Third Point said the Farmington, Connecticut-based manufacturer could unlock more than $20 billion in shareholder value by splitting its operations into three businesses.
Separately, Ackman said Pershing Square was building a new position in another company, which he didn’t identify.
The firm made good progress during the first quarter, he said, and as of Friday all of its funds were in “slightly positive” territory. He said the performance has been driven primarily from its investments in Chipotle Mexican Grill Inc. and Automatic Data Processing Inc.
Pershing Square has been faced with an exodus of investors amid poor returns. The firm scaled back its operations at the end of last year and freed Ackman to focus on money management by having partner Ben Hakim interface with investors.
“The inevitable impact on that is that we expect not to raise large amounts of capital in the private funds,” Ackman said on the call. “That’s fine with us. If we can run our business effectively and compound at a high rate over time, our capital base will grow at a very nice rate and that has worked well for us.”
Pershing Square’s assets under management fell to $7.8 billion at the end of April, down from $8.2 billion in March and from a peak of $18.3 billion in 2015. Its net return on its investments for the month of April was 3.3 percent while, overall, its investments are down 5.6 percent this year, according to its most recent portfolio update.
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