Textron takeover speculation clouds Bell's future


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Textron takeover speculation clouds Bell's future


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Business-jet maker Cessna is believed to be the prize in an acquisition of Textron. CESSNA VIA MCT

Published reports that a Middle Eastern investment group is planning to make an offer to buy Textron sent the company’s shares soaring Thursday and added to the anxiety of employees of Fort Worth-based Bell Helicopter.Financial analysts and industry observers said that if a foreign buyer does purchase Textron, the U.S. government would probably force it to sell the company’s military businesses, including all or part of Bell.
Bell employees and customers have been on edge since early February, when Textron CEO Lewis Campbell told an investment conference that the parent company could be forced to sell one of its "prize assets" in the next year to pay off debt.
Textron shares (ticker: TXT), which had fallen from $65.52 last June to $3.57 a share in early March, gained $4.45 a share, or 48.8 percent, Thursday and closed at $13.56. The rally was triggered after Kuwait’s Al-Watan newspaper reported that an unnamed United Arab Emirates group is preparing to offer $21 a share to buy Textron.
The Kuwaiti newspaper didn’t identify its sources but reported that prospective buyers are interested in the civil operations of Textron and would sell its defense operations to an American company involved in the negotiations. The report said there was an assumption that the agreement would be reached on a U.S. holiday.
Textron’s prized asset is Wichita, Kan.-based Cessna Aircraft Co., the world’s largest manufacturer of business jets.
"Middle Eastern investors have been looking to get into the business-jet market for a long time," said Richard Aboulafia, aerospace industry analyst with the Teal Group forecasting and consulting service in Fairfax, Va.
"You get an instant fifth of the market with Cessna," which builds an assortment of smaller and midsize jets, has a strong reputation for quality and customer service, and has loyal buyers, Aboulafia said.
What happens to Bell if Textron is sold is another question.
Observers said the company’s military business would be attractive to Boeing, which partners with Bell on the V-22 Osprey, or to rival Sikorsky.
"Boeing and Sikorsky would definitely have a strong interest in the military components," said Rhett Flater, executive director of the American Helicopter Society, an industry group that includes all three companies.
But Flater said he doubts that Boeing or Sikorsky would want Bell’s civil business. Some other suitor, such as Italy’s AgustaWestland, might want the civil helicopter business, but Flater said he’s troubled by the "notion of breaking Bell up into two pieces."
John Murphy, a former Bell CEO and a Fort Worth resident, said it’s possible Sikorsky would be interested in acquiring all of Bell.
Cessna had 2008 revenues of $5.7 billion, compared with $2.8 billion for Bell and $2.1 billion for Textron Systems, which is largely a defense-products company. The three subsidiaries combined had an order backlog totaling $23.2 billion at the end of 2008.
Cessna has been hammered by plummeting business-jet sales since the onset of the global financial crisis last fall. The company, which had been accelerating production to keep up with demand, has now reversed course and announced plans to lay off more than 4,000 of its 11,700-person Wichita work force.
Bell employs about 6,000 in Tarrant County.
Textron spokeswoman Karen Gordon Quintal declined to comment, citing the company’s policy against discussing "rumor and speculation." Spokesmen for Boeing and for United Technologies, Sikorsky’s parent, also declined to comment.
Wall Street analysts were taking a wait-and-see approach.
"We do think it’s possible the company could be sold," JPMorgan Chase & Co. analyst Stephen Tusa said in a note to clients.
Tusa values Textron’s manufacturing assets at about $12 a share, well below the reported takeover offer price. "It only takes one high bid to make the market, so we’re not saying it does not happen," Tusa said, "but it looks expensive."
"Textron is the proverbi- al takeover candidate," said Jon Kutler, chief executive of Los Angeles-based Admiralty Partners, a private-equity investor in aerospace and defense. "I’ve been through two decades of rumors on Textron, so I’ll believe it when I see it."
Textron’s finance unit has suffered big losses on investments in mortgage-backed securities, and the company has said it needs to raise cash to refinance $6.5 billion in debt due in 2009 and 2010.
This report includes material from Bloomberg News.
You get an instant fifth of the market with Cessna."
Richard Aboulafia,
aerospace industry analyst with the Teal Group forecasting and consulting service in Fairfax, Va., on why a foreign buyer might have an interest in Textron