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Goodrich shares up as United Tech mulls bid

(Reuters) - Goodrich Corp shares surged 16 percent on Monday as diversified U.S. manufacturer United Technologies Corp negotiated terms for a potential purchase of the aircraft components maker.

Discussions were progressing on Monday, but the two companies have not yet reached a deal on price, people familiar with the situation said.

"There are still some steps to go through, including getting regulatory approval," one of the people said. "This is by no means a done deal."

One analyst said Goodrich could fetch as much as $128 per share in a deal. The company's shares closed up $14.71 at $107.60, shooting past an all-time high of $99.67 reached in July. It has a market capitalization of $13.5 billion.

United Tech is lining up $10 billion to $20 billion in financing for the deal, people familiar with the situation told Reuters on Friday.

An acquisition of Goodrich would be the biggest deal in a decade for United Tech, which makes Pratt & Whitney aircraft engines, Otis elevators and Carrier heating and air conditioning systems.

Adding Goodrich would help United Technologies build critical mass in aerospace as rising demand for fuel-saving aircraft spurs airline orders. At the same time, new aircraft programs such as the Boeing Co 787 Dreamliner and Airbus A320neo -- which Goodrich supplies -- are set to ramp up production.

Charlotte, North Carolina-based Goodrich's aircraft products include landing gear and wheels and brakes, fuel pumping systems, seating and nacelles, the enclosed structure in which the engine is housed or cargo is carried.

The company has topped Wall Street profit estimates this year as the aftermarket, or sales tied to service and parts, gained strength.

"People believe in the commercial aerospace cycle," said Ben Elias, an industrials analyst with Sterne Agee who follows United Tech. Goodrich "gets UTX into other parts of the plane where they are not," he added.

Goodrich could also provide a buffer for United Tech as some of its units face headwinds because of a declining defense spending outlook.

"There's also fears of a significant military downturn and leveraging strong commercial revenue to gird yourself against a military downturn makes sense too," said Richard Aboulafia, an aerospace analyst with Teal Group.

Still, a deal could face regulatory issues around overlap in the areas of service and maintenance, production of nacelles and landing gear, said industry executives. But they added they did not expect significant opposition from defense officials.

Pentagon did not have an immediate comment on potential regulatory issues involved in the deal.

NOT DONE YET

Sources familiar with the negotiations said on Monday there was no guarantee a deal could be reached.

United Tech CEO Louis Chenevert is seen as a tough negotiator and could walk away if Goodrich's price demands are deemed excessive, the first source said.

"He wants to make a smart decision. He wants a good deal, but he doesn't want to overpay either," the source said.

In 2008, Chenevert pulled out of a hostile $2.64 billion takeover offer for Diebold Inc , a maker of automated teller machines and has since said he would be reluctant to go hostile again.

Goodrich could be worth $110 a share over 12 months and could see further upside to $118 in 24 months, FBR Capital Markets analyst Patrick McCarthy wrote in a note to clients.

"The risk is that one could argue the stock is worth $127 to $128 on a takeout," he wrote.

Meanwhile, avionics suppler Rockwell Collins Inc , which had also been mentioned as a possible takeover candidate for United Tech, closed down 4 percent at $53.87. United Tech remained nearly unchanged at $75.55.

(Reporting by Karen Jacobs in Atlanta, Soyoung Kim in New York, Andrea Shalal-Esa in Washington and Philipp Halstrick in Frankfurt; editing by John Wallace and Andre Grenon)

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