United technologies

Rocketdyne, a high-tech business which is the world’s largest manufacturer of liquid-fuelled rocket propulsion systems, and belongs to United Technologies Corporation (NYSE:UTX), has been sold to GenCorp Inc. (NYSE:GY) for $550 million, according to a report by Reuters.

The move by United Tech, is a part of its on-going thrust, on reducing the debt it took on to fund its $16.5 billion acquisition of Goodrich Corporation (NYSE:GR). The other units on the block, but not yet sold, are the compressors business of the Hamilton Sundstrand unit, and Clipper Windpower. These are non-core units being shed by Chief Executive Louis Chenevert, in a bid to raise cash and lighten up on debt. It may be recalled that one component of financing in the Goodrich deal was a new share issue amounting to $4.6 billion, which later came under fire from shareholders. According to reports, the company has received encouraging interest in the compressors business, and expects to clinch the sale in the current quarter.

The move to sell Rocketdyne probably gained currency after the unit faced an uncertain future, once the U.S. space shuttle program closed last year. The situation may exacerbate next year in view of the looming sequestration policies, a proposed cut in defense expenditure, amounting to almost $500 billion. United Tech had purchased the unit from Boeing, paying $700 million in cash. Several parties had expressed interest in acquiring the unit, including private equity firms. The deal with GenCorp materialized after talks with a private equity player broke down.

“We are pleased to announce GenCorp’s agreement to purchase Rocketdyne. It is a significant step in our on-going portfolio transformation,” said UTC Chairman & Chief Executive Officer, Louis Chenevert, in the company’s press release.  “While it is not core to UTC’s commercial building systems and aerospace businesses, Rocketdyne is a solid company, and a national asset with many talented employees. Leading up to the closing with GenCorp, we will remain focused on operational excellence and 100 percent mission success.”

According to GenCorp Chief Executive, Scott Seymour, the company would be strengthened by the acquisition of Rocketdyne, because it would better positioned to compete in the marketplace, and could price its products more affordably. GenCorp’s Aerojet subsidiary, and Alliant Techsystems Inc. (ATK) both make solid-fuel rocket motors, and as such Rocketdyne’s liquid fuel capability would make a good fit for GenCorp.

The deal is likely to favour with competition regulators, as it would “immediately strengthen competition, by creating two strong competitors for liquid and solid rocket engines,” i.e. the combined Aerojet-Rocketdyne business and Alliant Techsystems, surmised defense consultant Jim McAleese.