UTC clinches the Chubb security deal

It gains a footing in the market
Tuesday, July 1, 2003

HARTFORD, Conn. - Three years after its failed attempt to buy Honeywell and enter the security market, United Technologies Corp. has finally found its way with plans to buy London-based fire and security service provider Chubb Plc.

The boards of both companies approved the $1 billion deal in early June, after months of discussions that begin in April. If approved by regulatory agencies and Chubb shareholders, UTC will acquire a security market leader in Europe, Australia and Hong Kong and a company with large presence in Canada, but only a small reach in the United States.

The potential for growth is there, say industry analysts, who expect UTC, which is known for its Otis elevators and Pratt & Whitney companies, to use the Chubb acquisition as a foundation to enter the security market. Worldwide Chubb employs 48,000 people and serves two million customers.

“It’s a significant move on the part of another defense company, in this case, to create a security platform,” said Jack Mallon, managing director of Mallon Capital. “It further highlights the attractiveness of this sector.”

Approximately six percent of Chubb’s $2.5 billion revenues come from the North American market, but most of that is from its Canadian operations. In Canada, the company is more widely known than in the States with its Chubb Security Systems Canada division and Counterforce Canada operations, installation and alarm monitoring firms. It also owns Verex Technology, an Ontario-based manufacturer of access control and digital video products.

In the United States, Chubb companies include its Counterforce operations, which it picked up when it bought A-Link USA and Alarm Processing Corp. in 2001 for $50 million. Chubb Security Systems Texas was created through a series of acquisition that included Security Data Systems, Leach Security and Citadel Industries.

And perhaps a little known fact is that Chubb owns Onity, a Norcoss, Ga., company that makes security products, such as locks.

UTC is just one of a series of giant companies in recent years to enter or expand its reach in the security field. It joins the ranks of General Electric, which bought Interlogix a year ago; Stanley Works, which acquired Best Access Systems earlier this year; and Honeywell, which gained significant market share when it bought the Pittway Corp. three years ago.

Industry analysts had speculated for a while that UTC would look for another company to buy in the security market after its deal to acquire Honeywell fizzled.

“UTC is trying to diversify its exposure to the defense and aircraft industry,” said John Mack, president of USBX Advisory Services, a consulting and mergers and acquisition firm. “Security is a nice, broad theme. It’s something they’ve been interested in for some time.”

UTC is not the first company to approach Chubb about an acquisition. Swedish security firm Securitas AB also courted Chubb, but talks broke down in May 2002 over price. Securitas AB owns Pinkerton’s and Burns International.

Perhaps the reason a deal had to be struck between Chubb and any other company until now is the baggage that Chubb carries. “It’s up in the air whether they’ll be able to effectively turn the Chubb operation around because obviously Chubb needs fixing,” said Mallon.

As part of the deal, UTC will assume Chubb’s debt, which totaled $934 million this spring. The ride, it seems, has not been smooth for Chubb since it de-merged split? from Williams Plc three years ago.

Company officials from UTC declined to comment on the deal beyond issued statements, one of which said they see many synergies between Chubb, Otis and Carrier heating, ventilation and air conditioning systems.

Chubb employees in North America deferred comments to officials in London, who could not be reached for comment by press time.