United Technologies to buy Honeywell for $ 40 bn

News of the talks comes as Honeywell’s industrial-control and specialty-chemicals businesses are posting weak global results, and management has come under increasing pressure from Wall Street to shed or cut costs in those and various other underperforming businesses. "I wish I wasn’t where I am in some of these businesses," Bonsignore told analysts earlier this week, but he stressed that Honeywell was determined to increase profitability, improve cash flow and make the hard decisions to sell lagging operations. He didn’t indicate at that time that merger talks were under way.

While news of the talks surprised most of Wall Street, some analysts had been speculating about such a linking in just the past few days. Analyst Nicholas Heymann of Prudential Securities said earlier this week that Honeywell and United Technologies would make a perfect merger, because both are interested in "selling complete, integrated systems" to aircraft manufacturers, airlines and building managers, with the goal of competing more effectively against General Electric Co in many of these areas. Last night, Heymann said the companies had already "virtually merged" in the parts-supply arena through a joint e-commerce effort.

Analysts predicted that management from both companies will look for synergies after the results of a late-1999 merger between Honeywell and Allied Signal Corp are more clear-cut. That merger has been a disappointment so far, with combined aerospace revenue sagging.

Many Honeywell managers view United Technologies as their primary rival in core businesses, and any merger appears to undermine basic arguments Honeywell used to explain its combination with Allied. That combination was supposed to create a company big enough to provide airlines and aircraft makers with one-stop shopping for parts, maintenance and other services to maximize profits.