Aerospace, Otis elevators and Carrier would offer more value as independent companies, says hedge-fund manager
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Billionaire hedge-fund manager Bill Ackman on Thursday called for a breakup of United Technologies Corp. saying the individual businesses are more likely to trade at fair value as independent companies.
In his hedge fund Pershing Square’s latest quarterly letter to shareholders, Ackman said he has had a “constructive engagement” with United Tech (UTX) management, “who appear focused on unlocking shareholder value.”
Earlier this week, Pershing disclosed in a regulatory filing that it had acquired 1.94 million United Tech shares in the first quarter, along with an investment in an as-yet unnamed company. Ackman has praised the industrial giant in the past, telling CNBC earlier this year that United Tech is “great.”
United Tech has promised to conduct a review of its operations as soon as it has completed the acquisition of aerospace components maker Rockwell Collins Inc. (COL), which is currently the subject of an antitrust review. United Tech’s three core businesses are its aerospace systems (UTAS) and Pratt & Whitney airplane engines business, the Otis elevator company and Carrier climate controls and security business.
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“The review may result in a three-way separation of Aerospace, Otis, and Climate, Controls and Security,” said the Pershing letter. “As each of these businesses has materially different capital requirements, competitive characteristics, and investor constituencies, we believe that they will be more likely to achieve fair value as independent companies.”
Management focus would be improved as “compensation can be more easily designed to meet shareholder objectives, and entrepreneurial zeal is unleashed from the IPO-like nature of corporate spinoffs,” said the letter. And each business would have its own capital structure, which would allow it to meet competitive and long-term capital requirements.
In other news from the letter, Ackman said Pershing’s stake in Chipotle Mexican Grill Inc.(CMG) contributed 5.4% to its gross performance in the year through May 15, while its stake in Automatic Data Processing Inc. (ADP) contributed 2.9%. But the nutritional supplements distributor Herbalife Ltd(HLF) shaved 3.3% off its gross performance, while Fannie Mae (FNMA) and Freddie Mac (FMCC) between them shaved off another 3.8%. Restaurant Brands International Inc. (QSR), the parent of Burger King, shaved 1.4% off gross performance and food company Mondelez International Inc. (MDLZ) took another 0.9%.
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Pershing fully exited Herbalife and Nike Inc. stakes in the first quarter. Ackman famously engaged in a long battle with regulators and investors to try to persuade them that Herbalife was a pyramid scheme, and at one time held a $1 billion short position in its stock.
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The hedge fund saw its net returns fall 8.6% in the first quarter, although that trend reversed in the second quarter through May 15, when returns were up 9.4%.
For the year through May 15, however, net returns are up 0.1%, compared with a 2.1% rise for the S&P 500 and a 0.8% gain for the Dow Jones Industrial Average.
Since the Pershing fund’s inception at the end of 2012, it has achieved net returns of 1.6%, while the S&P 500 has achieved returns of 112%.
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United Tech shares were slightly higher Thursday, but are down 2.4% in 2018 so far.
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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York.
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