United Technologies (NYSE:RTX) is in the process of breaking up, hoping to erase what some investors have complained is a "conglomerate discount" and allowing each of the three businesses to be valued by the markets on its own merits.
In this segment of Industry Focus: Energy, Motley Fool's Nick Sciple and Fool.com contributor Lou Whiteman take a look at whether the split is a good idea, and whether investors should buy in now.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on June 27, 2019.
Nick Sciple: Do you think this is going to be value-creating for shareholders as we spin these off? That, like Ackman has said, the sum of the parts is worth more than they're being valued at today? Would you consider buying shares today to realize the valuation expansion as these companies spin off? Or are you really only interested in the aerospace part of the business right now?
Lou Whiteman: I do think there is a conglomerate discount. I'm old enough to have seen this go back and forth, and back and forth. It tends to be after extended up cycles that we see the talk of conglomerate discounts and talk to break up. If we had five, 10 years of weakness or another big recession, that's when you start seeing businesses talk about the value of coming together and having disparate revenue streams tied to different cycles. But, yes, United Technologies, if you look at the sum of the parts, it has been undervalued. Part of that, I think, is the conglomerate. Part of that is, they've been such an active dealmaker and there's been so many moving parts inside the company that it's just hard to get your arms around.
I do like the long-term prospect of breaking these companies up. I like aerospace best, probably. But I do think there's value to be created. Because of how long this is going to take, because of the uncertainty, I wouldn't rush in and buy here. You probably can make a case that you'd do all right, but I'd be more interested in looking once it's done. But if I'm holding right here, I'm certainly not selling, and I'm probably going to do fine.