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Analysis: United Tech CEO sharpens portfolio-pruning shears

By Scott Malone

BOSTON (Reuters) - As United Technologies Corp gets ready to close the biggest takeover in its history, Goodrich Corp , CEO Louis Chenevert is scouring the diversified manufacturer's portfolio for businesses to sell.

The world's largest maker of elevators and air conditioners has identified businesses that generate about $1.5 billion in collective annual revenue -- about 2.5 percent of the company -- as possible sale targets, with most of the candidates in the company's fire and security products division, analysts said.

The Hartford, Connecticut-based company, which also makes Pratt & Whitney jet engines and Sikorsky helicopters, is likely to close at least some of the sales before it completes its $16.5 billion takeover of aerospace components maker Goodrich in mid-2012. The goal is to minimize the up to $4.6 billion in new shares it said it could issue to fund the Goodrich purchase.

"I have never, ever seen this degree of urgency," said Nicholas Heymann, an analyst at William Blair & Co that follows the company. "All of the senior managers are riding with the spurs on the horse the whole time. They are not walking the horse."

Chenevert, who has served as chief executive of the company since 2008, telegraphed his intentions at a meeting with investors in New York last week.

"I hate equity issuance," Chenevert said.

Analysts said they would welcome any efforts to help the company, with a $65.59 billion market value, avoid selling additional shares. United Tech this year also bought out its former partner Rolls-Royce Plc's stake in a joint venture that makes jet engines for $1.5 billion.

"If you have an underperforming business that you can sell, wouldn't you rather sell that than sell a piece of the whole company?" said Daniel Holland, an analyst at Morningstar.

PORTFOLIO REASSESSMENT

The company is doing a "reassessment of the portfolio," Chenevert told reporters on Thursday.

"There's UTC core, which is aerospace, which is commercial (building products) and then, looking at the portfolio, there's a lot of other pieces that I think will be under review," Chenevert said.

He declined to name any specific businesses the company would consider selling, but cited the private security-guard operations that United Tech had acquired as it built up its fire and security equipment business -- most of which it has sold -- as examples of the sort of labor-intensive business he did not want to be in.

"If a lot of humans are involved and it's labor-intensive, then they don't want to be in the business," said analyst Brian Langenberg, of Langenberg & Co. "There's about $1.5 billion in business that doesn't need to be in the portfolio."

Analysts said they expect most of the focus to be on the company's fire and security business. That unit made a series of more than 40 acquisitions from 2006 through early this year under the leadership of William Brown, who in October left United Tech to become CEO of Harris Corp , a maker of telecommunications equipment. That spate of deals includes the $1.8 billion deal for General Electric Co 's security arm that Chenevert holds up as an example of an idealized takeover for his company.

"Whenever a guy who rolls everything up into a business goes out the door, there's an opportunity to re-look at things," said Heymann, of William Blair.

The fire and security unit still has a handful of labor-intensive operations, including a security guard business in Macau and remote video and phone monitoring operations in the United Kingdom and Australia.

Another analyst suggested that the company's Clipper Windpower unit, which United Tech bought out last year, could be a sale candidate. The company had taken a minority stake in the wind turbine manufacturer but wound up buying the Carpenteria, California-based company outright after Clipper faced a cash crunch and turned to United Tech for a loan.

"The Clipper Wind acquisition, that strikes me as a piece that is not necessarily core to United Technologies, that they should be able to part with pretty easily and just generate cash," said Morningstar's Holland.

A United Tech spokesman declined to elaborate on Chenevert's Thursday comments.

(Reporting By Scott Malone; Editing by Gerald E. McCormick)

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