Exclusive: GE, Honeywell, United Tech eye BAE unit

By Soyoung Kim

NEW YORK (BestGrowthStock) – General Electric Co (GE.N: ), Honeywell International (HON.N: ) and United Technologies (UTX.N: ) are among the suitors for BAE Systems’ (BAES.L: ) aerospace unit that could fetch up to $2 billion for Europe’s top defense group, people familiar with the matter said on Tuesday.

BAE Systems, which has hired advisors to sell the unit, is close to completing a series of management meetings with nearly a dozen strategic buyers and private equity firms after the initial round of bids in September, the people said.

The initial suitors for the platform solutions business are currently in the process of conducting due diligence on the business, and final bids are expected sometime in November, the sources said.

Aerospace suppliers like Goodrich Corp (GR.N: ), Moog Inc (MOGa.N: ) and Esterline Technologies (ESL.N: ) also are eyeing the BAE unit, but it remains unclear if the group of smaller strategic bidders, with the exception of Goodrich, could do a deal of this size, the people said. Buyout firm The Carlyle Group (CYL.UL: ) also is in the running, the sources said.

The sources asked not to be identified because details of the auction are not public. GE, Honeywell, United Technologies, Goodrich, Moog, BAE and Carlyle all declined to comment.

Esterline did not respond to a request for comment.

The unit has drawn robust buyer interest at a time when air traffic is picking up after a deep slump lasting years, and bankers see a healthy pipeline of deals in the commercial aerospace market as buyers gain confidence at the signs of an industry upturn.

GE is a major customer of BAE’s aircraft engine controls.

The largest U.S. industrial conglomerate is mainly attracted by the division of BAE’s platform solutions group that makes aircraft-engine electronic controls for GE and for CFM International. CFM is a joint venture between GE and France’s Safran (SAF.PA: ), the sources said.

BAE’s digital engine controls, which govern fuel flow and control variable engine geometries, are used in a wide range of aircraft including the Airbus A320 and the Boeing 737 — the two hottest-selling passenger planes in history.

GE could have some say in the sale process because any buyer of the BAE unit would need to maintain a close commercial relationship with GE, the sources said. GE would be one of the strongest bidders if it decides to move forward with a final offer, the sources said.

“GE is a big elephant in the room,” one source said.

United Technologies competes with GE in the aircraft engine market through its Pratt & Whitney unit. Goodrich makes engine controls through a joint venture with Britain’s Rolls-Royce (RR.L: ), another GE rival in the aircraft engine market.

BAE’s platform solutions group also includes a commercial avionics business, which it bought from Boeing (BA.N: ) in 2004, that makes aircraft components that help with navigation and surveillance, and a division that makes hybrid propulsion systems for buses and trucks.

It employees 4,200 people at sites worldwide.

JPMorgan (JPM.N: ) and Wells Fargo (WFC.N: ) are running the auction. JPMorgan declined to comment. Wells Fargo was not immediately available for comment.

Linda Hudson, chief executive of BAE’s U.S. unit, told Reuters last week that BAE was seeing strong interest in its platform solutions business and the process was “moving forward in a robust way.”

“It’s performing very, very well, and we expected to have a lot of interest,” Hudson said. She declined to confirm estimates that the business could get offers of around $2 billion and declined to comment on any bidders.

The sale comes as BAE Systems is shopping around for firms to pump up its three focus areas — intelligence and cybersecurity; readiness and sustainment of existing weapons systems; and electronic systems.

Diversified industrial conglomerates such as GE, Honeywell and United Technologies, sitting on billions of dollars after cost-cutting during the recession, are also stepping up dealmaking to boost growth in a weak economy.

The industrial giants are eyeing deals mostly in the $1 billion to $3 billion range to expand their core strength or grow adjacent businesses, rather than venturing into new areas, bankers said.

In a deal that marked its return to the takeover track, GE reached a $3 billion deal to buy Dresser Inc earlier this month. Honeywell had also looked at Dresser, people familiar with the matter said.

(Reporting by Soyoung Kim; editing by Carol Bishopric, Phil Berlowitz)

Exclusive: GE, Honeywell, United Tech eye BAE unit