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United Technologies Nears Deal to Buy Rockwell Collins for More Than $20 Billion

The tie-up that would create one of the world’s biggest aircraft-equipment makers

United Technologies Corp. UTX +0.86% is nearing a deal to buy Rockwell Collins Inc. for more than $20 billion, a tie-up that would create one of the world’s biggest aircraft-equipment makers.

The companies are discussing a per-share price for Rockwell of $140 or less and could come to an agreement as soon as this weekend, according to people familiar with the situation. Rockwell shares closed at $127.99 Monday, giving the company a market value of $20.8 billion.

As with all acquisition talks, it is possible they could hit a snag and not result in a deal, or the expected price could change.

The deal would boost United Technologies’ business supplying Boeing Co. and Airbus SE as the aerospace industry ramps up for a new generation of jets. The company already owns one of the world’s biggest jet-engine makers, Pratt & Whitney, part of an aerospace division that also makes parts such as wheels and landing gear.

Rockwell specializes in cockpit displays and communications systems for passenger jets and military programs. In April, the Cedar Rapids, Iowa, company closed its roughly $6 billion acquisition of B/E Aerospace Inc., a maker of plane seats and interiors.

Since word of the talks surfaced this month, several analysts have said they don’t expect significant antitrust issues given United Technologies and Rockwell make different airplane parts. But airplane manufacturers might voice concerns about any consolidation among their suppliers. Boeing and Airbus have also been nudging their way into aftermarket business to capture some of the profit from selling and servicing parts—putting them on a collision course with suppliers.

The possibility of a United Technologies deal for Rockwell caught some analysts by surprise. In June, United Technologies Chief Executive Greg Hayes told analysts the Farmington, Conn., company was looking to spend roughly $1 billion on acquisitions this year. It had about $7 billion in cash.

“As far as bigger M&A, it’s something we always look at, but I am reluctant to go out and pay some of the prices that we see today,” Mr. Hayes said at the Paris Air Show.

United Technologies has a market value of about $92 billion. Last year, the industrial giant, which also makes Carrier climate control systems and Otis elevators, rebuffed unsolicited takeover approaches from Honeywell International Inc.

Chhina’s military has developed advanced electronic warfare capabilities capable of disabling ships, aircraft and missiles and there are signs the People’s Liberation Army is preparing to use exotic electronic attacks in a future conflict with the United States.

Two recent collisions between US Navy warships and commercial ships have raised the specter that China was behind the accidents, using electronic means to disrupt or fool radar or navigation systems into creating deliberate collisions, according to military experts.

China has developed some of the world’s most advanced military electronic warfare weapons, including jammers, disruptors and cyber tools that can cause electronics to malfunction mysteriously, or to operate in ways that can cause them to self-destruct.

On July 30, the PLA showed off some of its new electronic warfare gear at an annual military parade in Inner Mongolia. Among the hundreds of armaments on display at the event was equipment used to disrupt enemy radar and communications in air defense and ground combat.

“Electronic warfare has now become a key means of combat in modern warfare,” Wu Yafei, head of the electronic confrontation formation at the parade, told Xinhua. “The enlisting of the new electronic warfare equipment in the PLA has significantly enhanced its capability in this field.”

Among the systems shown were two electronic warfare reconnaissance vehicles, Y-8 electronic jamming aircraft, and drones capable of paralyzing and suppressing command and control communications.

Chinese military writings for years have discussed the use of electronic warfare and in late 2015 the PLA upgraded its electronic warfare troops and cyber warfare force into a new military service called the Strategic Support Force.

Literature on the subject includes a 2012 report, published in the journal Shipboard Electronic Countermeasure, on the PLA’s development of the “Wolf Group at Sea,” described as a distributed electronic warfare system that will be used to attack battle groups at sea.

A 2011 report by a research Institute at China Aerospace Science and Industry Corp., one of Beijing’s main arms manufacturers, outlines an “anti-Aegis defense system” for use against American Aegis battle management-equipped warships. Most of the US Navy’s missile and missile defense ships, including both the McCain and Fitzgerald, are Aegis warships. Japan and South Korea also operate Aegis warships.

The report calls for using a combination of large numbers of maneuvering hypersonic missiles along with electronic means to attack Aegis ships that are equipped with powerful electronic defenses.

“It is very difficult to attack [Aegis] effectively,” the report said. “However, with rapid development of precision guidance technology and missile penetration technology, [the] Aegis defense system becomes imperfect. Attacking method is discussed from the view of information countermeasures.”

The report concludes: “The Aegis system has integrated various types of advanced weapons [with] various integrated combat operational capabilities, such as anti-air, anti-missile, electronic warfare capabilities, and so forth, and defense measures that incorporate both defense and offense capabilities.” It adds: “From a practical perspective, there has never been any shield which cannot be penetrated.”

Strategically, China – in recent decades – has been seeking hegemony over all waters close to its coasts. In doing so it wants to drive the US Navy out of Asia, claiming that the South China Sea, East China Sea and other waters in the region are Beijing’s sovereign maritime territory.

In fact, 10 years ago a Chinese admiral proposed to the commander of the US Pacific Command at the time, Adm. Tim Keating, that the United States and China divide up the Pacific into spheres of influence. Under the plan, China would take control of the western Pacific while the US would control the eastern part. Keating rejected the plan, insisting the US Navy would protect freedom of navigation throughout the ocean.

On the warship collisions, Navy officials have voiced doubts that the two destroyers’ electronics were compromised by hackers but have not ruled out such interference. Investigators’ primary theory about the cause is that a mechanical failure or crew error is to blame.

The US Chief of Naval Operations, Adm. John Richardson, said that with regard to the most recent collision investigators would also examine whether electronic defenses were disrupted or fooled in an intentional act.

Both guided-missile destroyers were rammed from the side. The USS John S. McCain was hit by an oil tanker on August 21 in the Straits of Malacca, a busy shipping route, near Singapore. The USS Fitzgerald was rammed by a container ship in waters near Japan June 21. A total of 17 sailors died in the accidents, and the commander of the US Seventh Fleet was fired as a result of these and two earlier mishaps.

Suspicions were raised in the case of the Fitzgerald, based on indications the freighter that hit the warship was being guided by its electronic autopilot at the time. An interim Navy report issued on August 11 offered no explanation for the cause of the accident. The report said Fitzgerald was operating as a “darkened ship” with running lights on but with minimal interior lighting. It noted that the “moon was relatively bright” with “unrestricted visibility.”

The fact that both onboard radar and watch officers failed to see the freighter in time to avert the collision has raised the possibility of electronic interference. One theory is that the freighter’s autopilot was hacked and a collision course set.

Similarly, in the case of the McCain, the ship was rammed by an oil tanker despite use by the crew of several types of radar and round-the-clock watch officers on the bridge.

Further raising suspicions in the case of the McCain is the fact that, days before the incident, the destroyer took part in a freedom of navigation operation by sailing within 12 miles of the disputed Mischief Reef, in the nearby Spratlys Islands, in a bid to challenge China’s claims to the reef, one of three increasingly militarized islands close to the Philippines. China protested the warship passage.

After the McCain collision, Foreign Ministry spokeswoman Hua Chunying, echoing earlier state-run media comments, criticized the US for hazardous seamanship.

“Many people are very concerned about the harm posed by the frequent activities of the US forces in the relevant waters to the freedom and security of navigation,” she said. “We hope that the United States can take this issue seriously and properly handle it.”

Navy investigators’ suspicions of Chinese electronic interference in the McCain collision are also being fueled by the proximity of a Chinese vessel shortly before the incident occurred. Commercial maritime tracking data used to monitor international ship movements revealed that the Chinese vessel was shadowing the freighter that rammed the McCain and veered away shortly before it took place.

David Benson, a professor of strategy and security studies at the Air University in Montgomery, Alabama, doubts China would risk conducting an electronic attack on the warships.

“There is no obvious motive for China, or any other actor, to hack Navy vessels in such a fashion,” Benson stated in a recent blog posted on the website War on the Rocks.

“Cyber capabilities are extremely perishable, and if an actor has the ability to interfere with a destroyer’s operations, doing so during a time of relative peace is costly,” he noted. “While damaging a couple of destroyers might impose costs on the United States in the short term, it is nowhere near sufficient to offset the risk of losing or exposing a capability that could be priceless in a war.”

Rick Fisher, a senior fellow at the International Assessment and Strategy Center who closely tracks Chinese military developments, disagrees.

“It is ludicrous to assert that China does not have any motivation to try to hack or otherwise cause accidents that militarily or politically damage US military forces in Asia,” Fisher said. “Whether or not China played any role in these incidents, the immediate campaign in Chinese state media to exploit these accidents to tar the US Navy as ‘incompetent’ and ‘dangerous,’ laid bare the Chinese government’s abject hostility to the US Navy and desire to sweep US power from Asia.”

Even if the investigators conclude that the accidents show the need for a greater top-down emphasis on naval professionalism and new investment in training, military planners should not be deterred from adding cyber and insider-traitor threats to a China threat matrix that includes new submarines, anti-ship ballistic missiles and future nuclear carrier battle groups.

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Tilney has tabled an all-cash bid for S&W in an effort to derail its planned merger with Rathbones, Sky News can reveal.

The wealth manager Tilney is trying to gatecrash a £2bn merger between two rivals by tabling a takeover bid for Smith & Williamson (S&W), further underlining the accelerating race to consolidate the sector.

Sky News has learnt that Tilney, which has assets of about £23bn under management, lodged an all-cash offer for S&W following confirmation of the latter's talks to combine with Rathbone Brothers.

City sources said on Tuesday that S&W's management team, led by David Cobb and Kevin Stopps, had expressed a desire to pursue a deal with Rathbones rather than the competing offer from Tilney.

One insider close to the situation described the value of the two bids as "comparable", but said the Tilney offer would provide "greater certainty" because it would be entirely in cash.

Rathbones is working on the details of an all-share merger with S&W, with a formal announcement about the terms of a deal expected as early as next week.

The two-way fight for S&W highlights the battle to bulk up in a sector which faces a swathe of regulatory challenges.

Tilney is majority-owned by Permira, the private equity firm, and demonstrated its desire to grow through acquisition last year when it bought Towry for roughly £600m.

S&W manages roughly £19bn for clients.

It was effectively put up for sale earlier this year when AGF, a Canadian investor which holds roughly 30% of S&W's shares, signalled that it was open to offers.

The fate of S&W will also be partly determined by its former employees, who own more than 20% of the shares.

AGF is understood to be being assisted by Spencer House, an advisor on asset management deals.

A source suggested that the Canadian firm had indicated support for the Rathbones tie-up.

One analyst described Tilney and S&W as "an odd fit" because of their different customer profiles, while another suggested that the preference of S&W's management for an all-share deal over one providing the certainty of cash meant the company had been "hijacked by its management".

The merger proposal from Rathbone‎s, which was established in Liverpool in 1742 and has a market value of about £1.4bn, attributes to S&W a price tag of close to £600m, according to insiders.

If completed, their tie-up will bring together two companies employing roughly‎ 3000 people in total.

Combining the two businesses would give Rathbones access to S&W's network of specialist tax and financial advisers at a time when clients are seeking ‎increasingly sophisticated services from wealth management firms.

The deal, which will be structured as a takeover by Rathbones, will hand shares in the combined group to hundreds of S&W‎ employees, who own the majority of the company.

Plans for a flotation of S&W were put on hold amid growing market turmoil in 2007 as investors became jittery ahead of the banking ‎crisis.

‎Rathbones provides investment and wealth management services for private clients, professional intermediaries and trustees, and manages roughly £32bn of clients' money through Rathbone Investment Management.

Adding S&W's asset management arm would create a funds powerhouse with well over £50bn under its stewardship, given that Rathbones managed more than £36bn in total at the end of June.

The merger would also bring the UK's eighth-biggest accountancy firm into its ownership.

Rathbones' swoop on S&W will follow moves by rivals such as Brewin Dolphin to broaden their offering to clients and comes in the wake of stellar growth at companies including Hargreaves Lansdown.

Rathbone Brothers plc, which is in the FTSE-250, is run by Philip Howell, its chief executive.

Mr Howell will assume the top job in the combined group if the S&W deal goes ahead, sources said.

Like other wealth managers, Rathbones is having to contend with the requirements of new legislation known as Mifid-II, which is paving the way for far-reaching changes to the way the industry operates.

Tilney, S&W, which is being advised on the talks by Evercore and Canaccord Genuity, and Rathbones, which is being advised by JP Morgan and Royal Bank of Canada, declined to comment.

NORTH KOREA ENVOY ADDS: "AND THE U.S. SHOULD BE FULLY RESPONSIBLE FOR THE CATASTROPHIC CONSEQUENCES IT WILL ENTAIL"

Apple, as expected, has scheduled one of its trademark product briefing keynote events for Sept. 12, according to the WSJ.

What’s on the agenda? Almost certainly new iPhones, a new Apple TV box, a new Apple Watch and a longer introduction to HomePod, Apple’s forthcoming home speaker system.

This is Apple’s most important keynote in a few years, since it unveiled the iPhone 6 and 6 Plus and first previewed the Apple Watch in Sept. 2014.

After a big launch for those devices in 2016, Apple went into a slump for most of last year that it’s only now recovering from. Shrinking sales didn’t really hurt Apple — it has enough cash to outlast an ice age — but it made it look like post-Steve Jobs Apple hasn’t been innovative enough.

So this is Apple’s chance to show it can still make the best stuff, while also driving its sales growth streak.

Apple did not immediately respond to Recode’s request for comment.