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Breaking News from CNBC’s David Faber: Honeywell and United Technologies Have Held Talks About Merger – Sources

WHEN: TODAY, MONDAY, FEBRUARY 22

WHERE: CNBC'S "POWER LUNCH"

Following is breaking news from CNBC's David Faber. Following is a link to the story on CNBC.com: http://www.cnbc.com/2016/02/22/honeywell-united-technologies-held-merger-talks-sources.html.

All references must be sourced to CNBC.

MICHELLE CARUSO-CABRERA: WELCOME BACK TO "POWER LUNCH." BIG STORY. LETS GET TO DAVID FABER WHO HAS SOME NEWS ON TWO GIANT COMPANIES. DAVID?

DAVID FABER: THANKS A LOT, MICHELLE. AEROSPACE GIANTS HONEYWELL AND UNITED TECHNOLOGIES HAVE RECENTLY HELD TALKS ABOUT A MERGER THAT WOULD CREATE A $94 BILLION SALES COLOSSUS ACCORDING TO PEOPLE FAMILIAR WITH THE SITUATION. THE DISCUSSIONS OCCURRED WITHIN THE LAST TWO WEEKS AND WERE FOCUSED ON A DEAL IN WHICH HONEYWELL OFFERED A PREMIUM LARGELY IN STOCK, BUT SOME CASH, FOR THE SMALLER UNITED TECHNOLOGIES. THERE IS NO ASSURANCE THAT THESE TALKS ARE GOING TO LEAD TO A DEAL. THERE ARE SIGNIFICANT CONCERNS ON THE UTX SIDE OVER WHETHER ANY COMBINATION CAN PASS ANITRUST REVIEW GIVEN THE TWO COMPANIES PROVIDE SO MUCH OF WHAT GOES INTO AN AIRPLANE AND WOULD LIKELY FACE OPPOSITION FROM THE LIKES OF SOME OF THEIR BIG CUSTOMERS, BOEING AND AIRBUS. IT IS THEREFORE UNCLEAR WHETHER HONEYWELL, WHICH INITIATED THE LATEST TALKS, WILL EMERGE WITH A DEAL. THE CURRENT TALKS REPRESENT THE LATEST ENGAGEMENT IN AN ON AGAIN/OFF AGAIN COURTSHIP THAT BEGAN ALMOST ONE YEAR AGO AND HAS CHANGED SHAPE AS THE RESPECTED MARKET CAPS OF THE TWO COMPANIES HAVE DIVERGED. EARLIER LAST YEAR WHEN UTX WAS LARGER IN VALUE THAN HONEYWELL, UTX'S CEO GREG HAYES APPROACHED HIS COUNTERPART AT HONEYWELL, DAVID CODY ABOUT THE POSSIBILITY OF MERGING THE TWO COMPANIES. THOSE DISCUSSIONS CENTERED ON A DEAL THAT REPRESENTED A MERGER OF EQUALS BUT WOULD HAVE HAD UTX MANAGEMENT IN CONTROL ACCORDING TO PEOPLE CLOSE TO THE CONVERSATIONS. THOSE TALKS BROKE DOWN WHEN UNITED TECHNOLOGIES STOCK PRICES SUFFERED SIGNIFICANT DECLINES AND THE TWO COMPANIES FOUND THEMSELVES UNABLE TO AGREE ON WHO WOULD BE IN CONTROL OF THE COMBINATION. LAST FALL, HONEYWELL TURNED THE TABLES AND APPROACHED UTX ABOUT A DEAL. THE SO-CALLED "BEAR HUG" LETTER THAT WAS SENT TO UTX OFFERED ITS HOLDERS A SLIGHT PREMIUM FOR THEIR SHARES BUT WAS STRUCTURED AS A MERGER OF EQUALS. SOURCES TELL ME THAT PROPOSAL WAS TURNED DOWN BY UTX LAST OCTOBER WHICH CITED CONCERNS ABOUT ANTI-TRUST RISK AS A KEY IMPEDIMENT. HONEYWELL DECIDED AGAINST MAKING THE PROPOSAL PUBLIC AND THE TWO COMPANIES HAD NO CONTACT FOR THE MONTHS THAT FOLLOWED. BUT AS HONEYWELL'S STOCK PRICES OUTPERFORMED UTX'S AND ITS MARKET VALUE HAS GROWN TO BE MORE THAN $10 BILLION ABOVE ITS OWN IT WAS EMBOLDENED TO TRY AGAIN. IN RECENT WEEKS HONEYWELL CEO CODY PRESENTED A NEW CASH AND STOCK PROPOSAL THAT WOULD PROVIDE A PREMIUM TO UTX HOLDERS. THE EXACT TERMS OF THE PROPOSAL COULD NOT BE DETERMINED. BUT GIVEN THE RESPECTIVE SIZES, ANY COMBINATION WOULD LIKELY ROUGHLY END UP SOMEWHERE AROUND EQUAL OWNERSHIP OF BOTH SHAREHOLDER BASES. THE INDUSTRIAL LOGIC OF A COMBINATION HAS BEEN THE FOCUS OF CURRENT AND PREVIOUS MANAGEMENTS AT BOTH COMPANIES. IN OCTOBER OF 2000, I REPORTED THAT UTX WAS CLOSE TO A DEAL TO BUY HONEYWELL, ONLY TO WATCH THAT TRUMPED BY AN OFFER FROM GE, WHICH AFTER OPPOSITION FROM EU REGULATORS FOUND ITSELF UNABLE TO CLOSE THE TRANSACTION. THE TWO COMPANIES ARE LEADERS IN AVIATION AND AEROSPACE, WHERE UTXS PRATT AND WHITNEY MAKES AIRCRAFT ENGINES. BOTH COMPANIES ALSO PROVIDE THE AVIANICS AND OTHER SYSTEMS THAT LET AIRPLANES FLY. THEYRE ALSO BOTH LARGE PLAYERS IN THE CLIMATE CONTROL BUSINESS. GIVEN THE RESPECTIVE MARKET SHARES IN THOSE BUSINESSES, ANY COMBINATION WOULD BE EXPECTED TO FACE A SIGNIFICANT ANTITRUST REVIEW, NOT JUST HERE IN THE U.S., BUT IN EUROPE AS WELL. SPOKESMAN FOR HONEYWELL HAS NOT RETURNED CALLS. A SPOKEPERSON FROM UNITED TECHNOLOGIES HAS DECLINED TO COMMENT.

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