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Why Shares of United Technologies Fell in February

By Lou Whiteman - Mar 8, 2020 at 10:32PM

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The market stumbles as the industrial conglomerate nears a major merger.

What happened

Shares of United Technologies (RTX 0.95%) fell 13.1% in February, according to data from S&P Global Market Intelligence. The industrial conglomerate was caught up in the broader COVID-19 coronavirus sell-off, as well as the company's soon-to-close deal to greatly expand its exposure to the defense sector.

So what

United Technologies in February traded as the coronavirus threat expanded, with investors worried the outbreak would disrupt manufacturing supply chains and depress business for its massive Carrier HVAC and Otis elevator units. The company also has exposure to the hard-hit airline sector, as the maker of Pratt & Whitney engines.

The market sell-off is coming at a tricky time for UTC, which is in the process of finalizing the spinoff of Otis and Carrier and then combining its massive aerospace business with Raytheon.

Aerospace engineers working on a engine assembly line.

Image source: United Technologies.

As the Raytheon deal grows nearer, some large United Technologies shareholders are heading for the exits. Bill Ackman's Pershing Square, which had agitated for change at UTC but came out against the deal, in its Feb. 5 annual investor presentation said it exited its position after losing confidence in management.

"We decided to exit our position at a small profit and redeploy our capital elsewhere rather than fight the transaction and replace management," Pershing said.

Another hedge fund, Paulson & Co., also announced it had exited a UTC position, and a third, Dan Loeb's Third Point Management, decreased its stake.

Now what

Whether you agree with Ackman and dislike the Raytheon deal or support it (personally, I like it) the upcoming merger is what is driving the stock right now. Raytheon and UTC hope to close early in the second quarter.

Raytheon is coming into the deal red-hot, and United Technologies also had a strong first quarter. Deals this big are tricky to integrate, and Wall Street is likely going to take its time watching how the merger plays out, but this combination has a lot of potential. Don't let near-term weakness during a difficult macroeconomic month scare you away from UTC or the forthcoming Raytheon Technologies.

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