By the CBJ Editorial Staff
The potential for an acquisition of Rockwell Collins, the Corridor’s largest private employer, by Connecticut-based United Technologies (UTC) has caused a flood of anxiety across Iowa’s Creative Corridor.
As we have stated previously in this space, as Rockwell goes with its 9,000 employees in the region, so goes the entire region.
If — and that’s a big “if” — the takeover is accomplished, it could be the biggest story since the floods of 2008.
But before we elaborate on the speculation, let’s review Business 101.
No matter how politically incorrect its sounds, the purpose of a private company is first and foremost to make money.
The purpose of a publicly-traded company like Rockwell and UTC is to maximize shareholder value. That usually means being profitable and sometimes means getting bigger to compete better in an ever-increasing global economy.
Rockwell Collins itself has played the acquisition game successfully, and UTC’s logic would be similar to Rockwell Collins’ recent logic for its $8.6-billion acquisition of B/E Aerospace earlier this year. By being able to supply more content on an aircraft, a component supplier can generate more revenue through the same customer relationships. It can also add technology that collects and monitors information about how systems of the aircraft are performing, tap cost synergies and provide more negotiating leverage as aircraft manufacturers increasingly push for cost reductions.
Rockwell Collins certainly has been maximizing shareholder value in the past 12 months after completing its purchase of B/E Aerospace earlier this year. Its stock price had climbed 28 percent this year before news of the UTC offer and then proceeded to reach a record high of approximately $127 per share.
The current reported offer of up to $140 per share is only an 18 percent increase over the Aug. 4 closing price of Rockwell Collins shares. Takeover premiums of 30-40 percent are more common.
Obviously, we prefer to have major companies in the region be headquartered here, but we aren’t inherently opposed to UTC buying Rockwell.
So, what happens if the sale proceeds?
Certainly, a big chunk of shareholders throughout the region will get a bigger check (if they sell their stock now). That is good news.
But there is a potential downside.
When a company is acquired, it’s common even in the best case for the acquirer to consolidate many headquarters functions such as accounting, human resources and risk management, eliminating jobs. A prominent Corridor business leader told us that when a local company is purchased by a company from outside the area, the acquired company tends to lose part of their personality. It’s not difficult to think of several larger companies in the area that have had that happen to them.
In an ideal situation, a company is profitable, the shareholder value is optimized and the community and region where it is headquartered reaps the benefit of wealth creation by supporting civic and charitable causes.
When the company is headquartered somewhere else, the ideal situation is difficult to preserve.
