Sunday, March 15, 2015

UTC Selling The Silver?

In February 2011, Aetna Insurance Company’s CEO, Mark Bertolini told a Middlesex County Chamber of Commerce breakfast group that Connecticut was not a profitable place to do business.

“Connecticut,” said Mr. Bertolini, “falls very, very low on the list as an environment to locate employees . . . in large part because of the tax structure, the cost of living, which is now approaching, all in, the cost of locating an employee in New York City.”

The Malloy administration quickly moved to shower Aetna with preferments, and Aetna’s honcho offered a weak apology, promising Mr. Malloy on a stack of bibles that his company would not hightail it to another state but continue to maintain its headquarters in Connecticut. He was grateful that Mr. Malloy, agitated by the possible loss of tax revenue, had opened Connecticut’s treasury to Aetna. Mr. Malloy in turn was grateful that Aetna would continue to remain in the spot, here to be plundered by tax starved government officials.

The Chief Executive Officer of United Technologies Company (UTC), Gregory Hayes, likely was watching the performance from the wings, and he picked up the script where Mr. Bertolini had dropped it. UTC had been nodding its head sadly for quite some time. In December 2014, Mr. Hayes told the Wall Street Journal that the company’s board of directors had “authorized a long, sober look at the helicopter manufacturer [Sikorsky] with a view to selling or spinning-off  the UTC owned company, according to a front page, below the fold story in a Hartford paper.

This astonished and dismayed US Representative Rosa DeLauro, who stamped her foot and screeched, “I understand that UTC is exploring options and no decisions have been made, but UTC CEO Greg Hayes has previously assured members of Connecticut’s congressional delegation that he is committed to keeping Sikorsky in Stratford. I expect him to honor that and will be communicating that directly to him."

This was not the first time Ms. DeLauro was cut out of the information loop.

Early in 2010, Sikorsky President Jeff Pino, “under marching orders to raise the division's profits,” according to a news story, boasted to stock analysts, “We've nearly tripled the amount of direct production labor hours from 2006 to 2009. And for the first time in the history of our company, more than half of our hours are outside of Connecticut. We're very proud of that because outside of Connecticut, as I told you last year, by definition is low-cost sourcing." Having met his goal of a 10 percent profit margin in 2010, Pino was then aiming for fourteen percent by 2014.

Details concerning the September 2011 cuts made by Sikorsky were not shared with Connecticut’s all Democratic U.S. Congressional delegation; the cuts included the elimination of 567 positions, 419 of which were in Connecticut. In the first round, 384 hourly members of the Teamsters Union were let go. Having met his goal of increasing the company’s profit margin by ten percent, Mr. Pino boasted to the stock analysts that he was aiming for fourteen percent by 2014, news that no doubt would make Sikorsky an attractive buy should UTC decide to sell or spin-off the company.

These tea leaves were in the cup long ago. Busy with political campaigns and anxious to impress on voters the necessity of their re-election, Connecticut’s governor and Democrats in the General Assembly were content to forgo an accurate reading of the tea leaves.

A decision to sell or spin-off Sikorsky has not yet been made, Mr. Hayes said a few days ago. Precisely because Sikorsky has become so profitable a company, tax liabilities might interfere with a purchase. In the last couple of months, Mr. Hayes had talked to some people concerning an acquisition.  "As we had those discussions,” he told reporters, “it became clear that very few people would probably step up and do it."

Sikorsky, Mr. Hayes explained, is a horse of a different color. As a military contractor, the company has slower growth prospects and lower margins; therefore, in any sale after a spin off, Sikorsky “will attract a type of investor different than those that are looking for higher-growth commercial businesses."

Let anyone who will read these tea leaves and predict accurately whether in the near future Sikorsky will be spun-off as a separate company (likely) or sold outright to a buyer (maybe) or spun-off as an independent company and then sold (possibly). No one – and especially not Connecticut’s politicians – will know precisely when the hammer will drop. In telegraphing to politicians and the general public though media reports the prospect of a company’s sale, sellers and buyers speak in the accents of the Oracle at Delphi. Their press releases are intentionally inscrutable.

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