A team of Wall Street analysts believes a sharp decline in the stock price of Textron Inc., the parent company of Bell Helicopter and Cessna, could open the door for an opportunistic bidder to acquire the conglomerate and then sell it off in pieces.
Macquarie Research Equities analysts Robert Stallard and Karl Oehlschlaeger estimate that Textron is worth $17.7 billion, or $70 a share. But the company's stock was trading just over $39 on Wednesday afternoon (Aug. 27), a steep drop from its close of $72.12 last Dec. 26. "If an outside buyer were to pay our target price of $56 [a share, or $14.2 billion] for Textron, they could still realize a pre-tax profit of $3.5 billion from then breaking the company up and selling the constituent businesses to interested trade buyers," they wrote in a note to clients on Wednesday morning. "We think Textron is not practically that difficult to split into its constituent businesses."
Bell Helicopter accounts for 17% of Textron's revenues, with the company's Defense & Intelligence unit bringing in another 14%. The Macquarie analysts estimate those two divisions could be sold together for $6.1 billion. Cessna, the company's general and business aviation crown jewel that accounts for 40% of revenues, would bring in $12.1 billion, plus another $1.4 billion for the company's non-aerospace Industrial division.
The real question is who would put up $14.2 billion needed to snare Textron. While the company would appear to be a ripe target for a private equity buyer, the recent credit crunch has made it more costly and difficult for those firms to finance debt. And other large aerospace and defense companies has historically been reluctant to buy industrial conglomerates and deal with the hassle of selling off pieces that can't be combined with their businesses.
Stallard and Oehlschlaeger say it's possible Textron shareholders could pressure management to find ways to improve the company's value. But they doubt the company's leadership team would move to sell it off in pieces -- like General Dynamics famously did in the early 1990s. "Textron management has long held the view that being a diversified company will give shareholders more protection in tougher times," they write, "though the stock has clearly not reflected that thesis of late."