WHEN: TODAY, TUESDAY,September 5, 2017
WHERE: CNBC'S "SQUAWK ON THESTREET"
Following is the unofficialtranscript of a CNBC EXCLUSIVE interview with United Technologies CEO GregHayes following the company's deal to buy Rockwell Collins. Following isa link to video of the interview on CNBC.com: https://www.cnbc.com/video/2017/09/05/utc-ceo-not-looking-at-ma-now.html.
All references must besourced to CNBC.
DAVID FABER: THANK YOU, CARLWE ARE HERE ON THE FLOOR WITH GREG HAYES, OF COURSE, CEO OF UNITEDTECHNOLOGIES. THIS MORNING -- ACTUALLY, YESTERDAY THEY ANNOUNCED DEAL TOACQUIRE ROCKWELL COLLINS $140 PER SHARE MOST OF IT IN CASH THE REST IN UTXSTOCK WHICH IS DOWN A BIT TODAY THANK YOU FOR BEING HERE.
GREG HAYES: THANKS FOR HAVINGME.
FABER: YOU KNOW I WAS LOOKINGBACK YOUR LAST EARNINGS CALL, I THINK IT WAS JULY 25th YOU SAID THE FOLLOWING"ON THE M&A FRONT ACQUISITIONS WE'VE COMPLETED AT CCS AND OTIS LAST YEARARE CONTRIBUTING TO OUR GROWTH STORY THIS YEAR AND WE CONTINUE TO HAVE A PLACEHOLDERAT $1 BILLION TO $2BILLIONS FOR M&A THIS YEAR BUT AS I SAID BEFORE WE WILLBE OPPORTUNISTIC FOR THE RIGHT DEAL." SO I WOULD ASSUME YOU ARE BOTH BEINGOPTIMISTIC AND THIS IS THE RIGHT DEAL. I MEAN IT HAS ONLY BEEN A MONTH AND AHALF SINCE YOU SAID THAT. WHY?
HAYES: WELL IT IS THERIGHT DEAL. I TELL YOU THE REASON 30,000 NEW AIRCRAFT ARE BEING DELIVERED INTHE NEXT 15 YEARS AEROSPACE BUSINESS IS GROWING DRAMATICALLY WE SEE REVENUEPASSENGER MILES UP 5% EVERY YEAR GROWTH IS COMING IN THE AEROSPACE BUSINESS BUTWITH THAT GROWTH COMES PRESSURE FROM THE PASSENGERS TO TAKE COST OUT TOCONTINUE TO INNOVATE AND HAVING SCALE IN THE AEROSPACE BUSINESS IS ABSOLUTELYEXSSENTIAL FOR YOU TO DELIVER THE VALUE TO THE CUSTOMERS THAT THEY EXPECT. SOWE HAVE THE OPPORTUNITY TO BRING TO ROCKWELL COLLINS WHICH IS A GREAT FRANCHISEGREAT FIRST CLASS FRANCHISE WITH OUR AEROSPACE SYSTEMS BUSINESS WE'LL HAVE A$23 BILLION AEROSPACE SYSTEMS SUPPLIER WE'' HAVE THE ABILITY TO DO THINGS THATOTHERS CAN'T IN TERMS OF TAKING COST OUT INNOVATION TECHNOLOGY DIGITALL ALL OFTHOSE THINGS
FABER: WHY NOW? YOUKNOW THERE WAS SOME WOULD THINK AN OPPORTUNITY FOR YOU TO HAVE BOUGHT ROCKWELLCOLLINS OR AT LEAST MADE YOUR INTEREST KNOWN WHEN THEY WERE TRYING TO BUY B/EAEROSPACE THEY MAY NOT HAVE BEEN FOR SALE. BUT WE ALL KNOW HOW THOSE THINGS CANWORK WHY WERENT YOU INTERESTED THEN AND WHY NOW, PARTICULARLY SINCE THEINTEGRATION OF B/E A IS STILL ON GOING? I WOULD THINK THAT HAS RISK IN IT.
HAYES: IT IS IN FACT I LIKETO TELL OUR PEOPLE WHEN I STARTED IN THE AEROSPACE BUSINESS IN 1989 WITHSUNDSTRAND CORPORTATION, OUR NUMBER ONE TARGET FOR TAKEOVERS WAS ROCKWELLCOLLINS BECAUSE OF THE SIMILARITIES IN OUR BUSINESS THIS HAS BEEN ON OUR RADARSCREEN FOR A LONG TIME AND FOR ALMOST THAT ENTIRE PERIOD IT HASNT BEEN FOR SALEWEVE HAD CONVERSATIONS ON AND OFF OVER THE YEARS WHEN THE B/E AEROSPACE DEALHAPPENED I HAD AN OPPORTUNITY TO CALL KELLY ORTBERG, THEIR CHAIRMAN,CONGRATULATE HIM ON THE DEAL AND SAY KELLY WE OUGHT TO LOOK TO SEE IF THERESSOMETHING WE CANT DO TOGETHER BEYOND THIS. IT JUST STARTED DOWN A PATH WHERE WESAID LOOK HOW CAN WE BRING THE BUSINESSES TOGETHER, IS IT A PARTNERSHIP,SHOULD WE TALK ABOUT JOINT VENTURE AND IT REALLY BECAME APPARENT THAT THE BESTWAY TO DRIVE COST OUT TO CONTINUE TO INNOVATE WAS TO BRING THE COMPANIESTOGETHER. AND I GIVE KELLY AND THE BOARD A LOT A CREDIT FOR A BUSINESS THAT WASNEVER FOR SALE THEY CAME QUICKLY TO THE CONCLUSION THIS WAS THE RIGHT DEAL FORTHEM, THE RIGHT COMBINATION.
FABER: SO IT WAS AFTER THEYCOMPLETED THE B/E A DEAL THAT YOU SORT OF SAID HEY CAN YOU GUYS THINK ABOUTTHIS
HAYES: YEH IT WAS LITERALLYMAY WHEN I CALLED KELLY.
FABER: AND THE DEAL CLOSED INAPRIL OR NOT TOO LONG AFTER
HAYES: YEH THEY CLOSED INAPRIL ABOUT A MONTH LATER. AND I CALLED THEM UP AND SAID LOOK, WE SHOULD TALKWE DID KELLY HAD A VERY OPEN MIND TO THIS THING WE THREW A LOT OF DIFFERENTIDEAS AROUND IT ULTIMATELY THIS IS THE ONE THAT STUCK AND I THINK IT'S THERIGHT DEAL
FABER: YOU WERE ASKED THISQUESTION ON THE CALL AND ILL ASK IT AGAIN YOU ARE PAYING DOUBLE PREMIUM IN ASENSE. ROCKWELL PAID A PREMIUM FOR B/E A. I KNOW AS A PERCENTAGE OF A WHOLE.ITS NOT THAT LARGE. WHY, AGAIN, HAVE YOU DONE THAT ARE YOU HAPPY WITH B/E ADOES THAT FIT APPROPRIATELY INTO THIS DEAL ITS INTERIORS, IT IS NOT THEDIGITIZATION OF THE AIRPLANE.
HAYES: IT IS BUT I THINK YOUHAVE TO REMEMBER AS PART OF OUR AEROSPACE SYSTEMS BUSINESS, WE HAVE $2 BILLIONINTERIOR BUSINESS OF OUR OWN, WE MAKE EVERYTHING FROM EJECTION SEATS TO CABINATTENDANT SEATING TO LIGHTING IN THE CABIN. WE ACTUALLY THINK WE WILL SEE MORESYNERGIES FROM THE B/E AEROSPACE OPERATION THAN WHAT ROCKWELL COLLINS WAS GOINGTO SEE AND THEY HAD ABOUT $190 MILLION AS FAR AS THE PREMIUM GOES, IT WAS ABOUTA 25% PREMIUM SO FULL PRICE. BUT AS I THINK ABOUT IT, IF WE BACK OUT THE B/EAEROSPACE EQUITY PORTION OF THIS, WHAT WERE REALLY PAYING IS A 30% PREMIUM FORLEGACY ROCKWELL COLLINS WHEN YOURE BUYING BEACH FRONT PROPERTY AND YOU GET ITAT A 30% PREMIUM I THINK THAT'S A PRETTY GOOD DEAL $140, ITS FULL PRICE. BUT$500 MILLION SYNERGIES, 6% OF SALES, WE'LL ADD 45 BILLION OF VALUE TO THEBUSINESSES BY BRINGING THEM TOGETHER.
FABER: YOU'RE TALKING ABOUTTHAT $500 MILLION NUMBER NOW. ANALYSTS HAD TIME TO PINE ON
THIS GIVEN THE LEAKS OR LEASTTHE PRESS COVERAGE THAT IT HAD GOTTEN OVER THE LAST MONTH. NOT A LOT OF THEMCAME UP WITH THAT HIGH A NUMBER. WHY ARE YOU CONFIDENT YOU CAN GET TO HALF ABILLION DOLLARS IN COST SYNERGIES?
HAYES: I THINK IT'S ACTUALLY– WE SAY 500 MILLION PLUS. AND YOU KNOW, IT'S 6% OF SALES. IT'S PRETTY SIMPLE,THOUGH. IF YOU TAKE A LOOK – PUBLIC COMPANY COSTS, THOSE ARE EASY, THOSE GOAWAY. DUPLICATE DIVEST SG&A, OVERHEAD COSTS OF RUNNING THE BUSINESSES, THATGOES AWAY. SUPPLY CHAIN SAVINGS, BEING ABLE TO LEVERAGE THE SCALE OF UTC'S PROCUREMENTORGANIZATION, BOTH DIRECT AND INDIRECT. AND THERE'S A LITTLE BIT OF FACTORY.BUT THIS IS NOT A JOBS STORY, THIS IS NOT ABOUT CLOSING A LOT OF FACTORIES.
FABER: LET'S HOPE NOT. YOU'VEBEEN DOWN THAT ROAD ALREADY.
HAYES: YEAH.
FABER: AND I'M SURE IT WASDISTRACTING, IF NOTHING ELSE.
HAYES: BUT IT'S BEHIND US, ISTHE GOOD NEWS. AND WE'RE MOVING UP TO OUR DEAL. I THINK THE GOOD NEWS IS IF WELOOK AT ROCKWELL, BECAUSE IT'S SUCH A GREAT FIT AND THERE IS SO LITTLE OVERLAPAND THE ANTI-TRUST ISSUES ARE MINIMUM, LESS THAN A COUPLE HUNDRED MILLIONDOLLARS OF PRODUCT OVERLAP, WE SHOULD GET THIS THING CLOSED AND WE SHOULD GETTHOSE SYNERGIES QUICKLY.
HAYES: YEAH. SPEAKING OFPRODUCT OVERLAP, YOU AND I AT LEAST, THE LAST TIME WE SPOKE, IT WAS A LONG TIMEAGO, IT WAS ON THIS FLOOR, IT WAS ABOUT A YEAR AND A HALF AGO.
HAYES: YEAH, I REMEMBER.
FABER: YOU DO REMEMBER. "AINTGONNA HAPPEN." IT'S A FAMOUS QUOTE. JIM AND I TALK ABOUT IT A LOT.
HAYES: WELL, THIS IS.
FABER: YOU'RE OF COURSE,TALKING ABOUT ANY INTEREST THAT HONEYWELL MIGHT HAVE HAD IN ACQUIRING UTXLARGELY BECAUSE OF ANTI-TRUST.
HAYES: RIGHT.
FABER: NOW, THAT DEAL ISNEVER GOING TO HAPPEN. WE GET THAT. THE GUYS WHO WERE TRYING TO MAKE IT HAPPENAT HONEYWELL MAY LOOK AT THIS DEAL AND SAY WAIT A SECOND. YOU'VE GOT – YOU PUTOUT THIS BIG MAP OF THE PLANE BACK THEN AND SAID LOOK HOW MUCH OF THE PLANE.IT'S TOO MUCH. CUSTOMERS WILL NOT ACCEPT IT. THE GOVERNMENT WON'T. YOU COULDPUT THAT SAME MAP OF THE PLANE OUT AND SAY HEY, WAIT A SECOND IT'S VERY SIMILARWHAT YOU HAD, WHAT YOU WOULD HAVE HAD IF YOU HAD ACCEPTED HONEYWELL.
HAYES: THE DIFFERENCE, DAVID,IN THIS CASE WE HAVE 200, $300 MILLION OF PRODUCTS THAT DIRECTLY OVERLAP, VERYSMALL OUT OF A $23 BILLION BUSINESS. WITH HONEY WELL THERE WAS $8 TO $10BILLION OF PRODUCT OVERLAP, EVERYTHING FROM AUXILIARY POWER UNITS,ENVIRONMENTAL CONTROL SYSTEMS. YOU NAME IT. IT WAS A GREAT DEAL, IF YOU THINKABOUT THE SYNERGIES YOU COULD HAVE GOTTEN.
FABER: OH MY GOD, THEY WERETALKING 3.5 BILLION, IF I RECALL.
HAYES: IT WOULD HAVE BEEN AGREAT DEAL. BUT YOU'D END UP DIVESTING MOST OF THE ARROWSPACE WHERE THEY WOULDBE GENERATED. THIS IS VERY DIFFERENT DEAL. THERE'S VERY LITTLE OVERLAP.ANTI-TRUST RISK, WE THINK, IS VERY LOW. AND, QUITE FRANKLY, WE'LL BRING THESECOMPANIES TOGETHER AND WE CAN CREATE A LOT OF VALUE FOR OUR CUSTOMERS BYBRINGING THE BUSINESSES TOGETHER. THIS IS NOT ABOUT ELIMINATING COMPETITION.THIS IS ABOUT ENHANCING OUR PRODUCT OFFERING TO HAVE A BETTER PRODUCT FOR THECUSTOMERS AT A LOWER COST.
FABER: AND WE WON'T SPEND ALOT OF TIME ON ANTI-TRUST BECAUSE I'VE NOT HEARD THAT PEOPLE BELIEVE IT WILL BEAN ISSUE. AN EMERGING THEME, THOUGH, SEEMS TO BE THIS IDEA THAT YOU'RE GOING TOSPLIT THIS COMPANY UP DOWN THE ROAD. THAT YOU'VE NOW – BULKING UP IN AEROSPACEAND THEN OTIS AND OBVIOUSLY CARRIER CAN GO THEIR OWN WAY. IS THAT TRUE?
HAYES: SO ONE OF THE THINGSWE PUT IN THE PRESS RELEASE LAST NIGHT WAS THE – A VERY SIMPLE STATEMENT THATSAID ONCE WE GET DONE WITH THIS DEAL AND WE GET THE INTEGRATION COMPLETE ANDWE'VE PAID DOWN SOME DEBT, WE'LL BE ABLE TO TAKE A LOOK AT A FULL RANGE OFPORTFOLIO OPTIONS. AT THE END OF THE DAY, WHEN THE DEAL IS DONE, WE'LL BE ABOUT60% AEROSPACE, 40% COMMERCIAL BUILDINGS WITH CARRIER AND OTIS. THE QUESTION ISALWAYS DO THOSE BUSINESSES BELONG TOGETHER I WOULD TELL YOU TODAY WE'LL NEEDALL THOSE BUSINESSES TO START PAYING DOWN SOME OF THIS DEBT. IF WE CONTINUE TOSEE A BIG DISCONNECT BETWEEN WHAT WE THINK IS INTRINSIC VALUE OF UTC AND THEACTUAL STOCK PRICE, WE'LL LOOK TO DO SOMETHING DIFFERENT. AND THAT'S WHAT I'VECOMMITTED TO OUR BOARD AND TO OUR SHAREHOLDERS IS IF DOESN'T WORK TOGETHER,WE'LL TAKE A LOOK AT SPLITTING IT UP.
FABER: ALRIGHT. SO YOU'LL BEYOUR OWN ACTIVIST IN A SENSE.
HAYES: THAT IS THE IDEA.
FABER: THAT'S THE IDEA ANDYOU HEAR THAT A LOT OF IT THESE DAYS FROM CEOs. AND IT'S A SMART THING TO BE,BUT HOW LONG? WHAT IS THE SENSE IN TERMS OF YOUR BAR – WHAT, 14 BILLION TO THEPUBLIC MARKETS I THINK FOR THIS DEAL - HOW LONG UNTIL YOU ACTUALLY BEGIN TOTHINK ABOUT THAT POTENTIAL PROBLEM, IN TERMS OF BELOW WHAT YOU BELIEVE IS THEINTRINSIC VALUE?
HAYES: SO WE THINK WE'LLCLOSE THIS DEAL SOMEWHERE BETWEEN 9 AND 12 MONTHS OUT. AN INTEGRATION WILL TAKEA YEAR PLUS. WE'LL START GETTING MOST OF THE SYNERGIES IN THE FIRST TWO YEARS.SO I WOULD SUSPECT WITHIN TWO YEARS WE'LL BE IN A POSITION TO START DOING THEEVALUATION. KEEP IN MIND, IF OUR PRICE RUNS UP, IT MAKES THE CASE MUCH LESSCOMPELLING. TO SPLIT OFF THESE BUSINESSES YOU'RE TALKING ABOUT A LOT OF WHAT WECALL NEGATIVE SYNERGIES, WE'VE GOT TO SET UP ABOUT $200 MILLION IN PUBLICCOMPANY COSTS TO MAKE THESE BUSINESSES STAND ALONE. YOU'VE GOT TO MAKE SURETHAT THE VAULATION ON A STAND ALONE BASIS WILL SUPPORT THAT. IN THE MEANTIMEYOU NEED THE CASH AND OTIS IS A GREAT CASH GENERATOR AND CARRIER IS A GREATCASH GENERATOR AND THEY'RE GREAT BUSINESSES. FRANKLY, THEY'RE BENEFITING FROMTHE SAME THING THAT THE AEROSPACE BENEFITS FROM, WHICH IS A GROWING MIDDLECLASS, GROWING URBANIZATION. SO THE MACROTRENDS THAT DRIVE AEROSPACE ALSO DRIVEOUR COMMERCIAL BUSINESS.
FABER: WE ALWAYS WANT TO TALKTO YOU ABOUT, OF COURSE WHEN WE BRING YOU ON, ABOUT OTIS AND CHINA, INPARTICULAR. I MEAN WHAT'S YOUR SENSE OVERALL OF GLOBAL GROWTH RIGHT NOW, GIVENTHE LENS YOU HAVE TO SEE IT THROUGH WITH CARRIER?
HAYES: IT'S ACTUALLY PICKINGUP QUITE NICELY. THE CONCERN HAS ALWAYS BEEN EUROPE, WHEN WILL EUROPE COMEBACK? AND NOW ALL OF A SUDDEN, WE'RE STARTING TO SEE EUROPE ACCELERATE VERYSTRONG ORDERS FROM OTIS AND CARRIER IN EUROPE. MIDDLE EAST IS STILL OF COURSE ABIT OF A DRAG WITH OIL PRICES. CHINA HAS STABILIZED, WE THINK. AND THE U.S., OFCOURSE, IS GROWING NICELY ITS NOT 4% BUT ILL TAKE 2.5% OR 3%. WE LOOK AT THEWORLD TODAY, WE SEE GROWTH ACCELERATING, A LITTLE BIT OF INFLATION IN THEMETALS PRICES BUT THAT'S OKAY. A LITTLE INFLATION IS NOT A BAD THING.
FABER: BACK TOAEROSPACE. THE AFOREMENTIONED HONEYWELL IS CURRENTLY REVIEWING WHETHER OR NOTIT WILL CONSIDER SEPARATING OFF ITS AEROSPACE BUSINESS. ARE YOU GONNA WATCHTHAT CLOSELY IF, IN FACT THAT, OCCUR OR DOESN'T OCCUR, AS YOU CONTINUE TO THINKABOUT EVEN TO YOUR SENSE, A SPLIT OF UTC?
HAYES: I CAN TELL YOUDAVID, WHEN WE'RE ALL DONE WITH THIS DEAL WE'LL HAVE ABOUT $50 BILLION OF DEBT.SO WE WON'T BE IN A POSITION TO DO MUCH ON THE M&A FRONT FOR A FEW YEARS,UNLESS WE HAVE TO USE UTC STOCK WHICH I'M NOT TYPICALLY IN FAVOR OF DOING. THEOTHER PROBLEM WITH HONEYWELL, AS WE MENTIONED, MOST OF THOSE BUSINESSES ARERIGHT ON TOP OF OUR BUSINESSES, SO THE SAME ANTI-TRUST ISSUES WILL EXIST IF WEWERE TO GO LOOK AT THOSE ASSETS.
FABER: 14 1/2 TIMES EBITDAFOR THIS COMPANY. IT IS A FULL PRICE YOU SAID IT YOURSELF.
HAYES: FULL PRICE.
FABER: ARE YOU CONCERNED ATALL? YOUR STOCK IS DOWN 2.5% TODAY?
HAYES: THOSE BUSINESSES WERETHERE 30, 40 YEARS. WE BUILD ENGINES TODAY THAT WILL BE ON THE WING FOR 30YEARS. WE BUILD ELEVATORS WILL BE THERE FOR 50 YEARS. YOU DON'T DO IT FORTODAY, YOU DO IT FOR THE NEXT GENERATION AND FOR THE NEXT 30, 50 YEARS.
FABER: GREG, YOU'VE WEIGHEDIN OCCASIONALLY ON LARGER ISSUES. THIS MORNING, WE'RE DEALING WITH THEPRESIDENT SAYING THE DREAM ACT MAY NO LONGER BE IN EFFECT. IMMIGRATION ISSOMETHING YOU TALKED ABOUT, I THINK, A BIT. YOUR DIVERSE WORKFORCE ANY THOUGHTSAT ALL ON THAT AND WHERE THINGS ARE GOING?
HAYES: YOU KNOW, I'M NOT APOLITICIAN. GETTING INTO THIS WHOLE ISSUE OF THE DEFERRED ACTION, IT'S ADIFFICULT ISSUE. I THINK, OBVIOUSLY, IMMIGRATION POLICY HAS TO BE ESTABLISHEDTHAT FOLLOWS THE RULE OF LAW. BUT AT THE SAME TIME WE HAVE TO BE COMPASSIONATEFOR THOSE PEOPLE THAT ARE ALREADY HERE. HOPEFULLY THEY'LL FIND A COMPROMISEDSOLUTION THAT MAKES SENSE TO TAKE CARE OF THOSE KIDS.
FABER: YOU DEALING WITH THEPRESIDENT AT ALL? THE CARRIER THING IS LONG BEHIND YOU NOW.
HAYES: THAT'S ALL DONE.
FABER: THAT'S ALL DONE. ANDTHIS DEAL WILL BE DONE IN 9 TO 10 MONTHS.
HAYES: 9 TO 12 MONTHS.
FABER: SEEMS LIKE A LONG TIMEACTUALLY.
HAYES: 17 OR SO JURISDICTIONSHAVE TO APPROVE IT, EVERYWHERE FROM THE U.S. TO EUROPE TO CHINA. SO, IT JUSTTAKES TIME.
FABER: WELL GREG, APPRECIATEYOUR TIME TODAY.
HAYES: THANK YOU SO MUCHAPPRECIATE IT.
FABER: YOU'RE VERY WELCOME.GREG HAYES, OF COURSE, CEO OF UNITED TECHNOLOGIES. BACK TO YOU.
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