It took three years, but Louis Chenevert has made United Technologies Corp. his company. With an $18.4 billion deal to acquire Goodrich Corp., the chairman and CEO of the aerospace-industrial conglomerate is placing a costly bet on the future of the commercial aircraft sector. He is also stepping out from under the big shadow cast by his legendary predecessor, George David.
David ran UTC from 1994 to 2008, transforming a laggard company into an industry model and laying the groundwork for long-term prosperity by greatly expanding UTC’s global footprint. Along the way, he generated immense returns for shareholders. Chenevert appeared to feel the challenge of filling those shoes during his early days as CEO. Relaxed and talkative during his previous job as president of UTC’s Pratt & Whitney unit, the imposing French Canadian became cautious and scripted. Reporters who interviewed him sometimes left with little new to write about, save for his pet project, Pratt¹s geared-turbofan engine.
But in pursuing the Goodrich deal, Chenevert demonstrated he has the boldness and confidence to lead UTC on a new course. The acquisition, which is expected to close next year, will reignite UTC’s growth in the commercial aviation market, balancing out the company’s industrial businesses. By marrying its Hamilton Sundstrand unit with Goodrich, UTC will increase its presence on important platforms such as the Boeing 787 and Airbus A350 while expanding its heft in a market that will likely grow increasingly crowded with new competitors from emerging markets.
Equally striking is that UTC is making its biggest acquisition ever -- and its first major aerospace deal since 1999 -- at a time when multi-industry conglomerates are coming under intense pressure from activist shareholders to unlock value by splitting up. Tyco International Ltd. announced plans last week to break into three companies, following in the footsteps of ITT Industries Inc. and The McGraw-Hill Companies, the parent of Aviation Week. In the defense industry, companies such as Northrop Grumman and L-3 Communications have given in to shareholder demands to spin off underperforming assets.
Buying Goodrich is just the first step for UTC, however. For the deal to pay off, the two companies will have to find a way to successfully join their cultures. It took many of the big mergers of the 1990s 5-10 years to accomplish that. “The blending of our two cultures is extremely important,” acknowledges Goodrich CEO Marshall Larsen, who is slated to run a new UTC unit that combines Goodrich and Hamilton Sundstrand. But, he adds, “we¹ve come to believe that our cultures are not that different.”
Chenevert is putting his chips on the table, and if the merger succeeds, UTC shareholders will reap benefits for years to come. Nobody can or should take David’s accomplishments from him. But it’s time for another legacy to be created.