Textron may be next activist target


Textron Inc. may be the next target of activist investors given that its broad portfolio of businesses and relatively modest valuation make it a potential restructuring opportunity.

With activist investing “all the rage” at the moment, RBC Capital Markets analyst Robert Stallard thinks Textron is a logical break-up candidate.

On this basis, he estimates the stock could be worth US$42 per share, representing an upside of 47% from Friday’s closing price of US$28.54.

“Realizing this value may not be straight forward though, as it would essentially require disposing of all the businesses that the company currently owns, which would take some time whilst asset prices are of course difficult to predict,” the analyst told clients.

The diversified aerospace and defence company’s industrial division is one business Mr. Stallard believes would garner a much better price than it could have a couple of years ago. He estimates Textron could generate US$8 per share in value by disposing of Kautex (automotive systems), E-Z-GO (light transportation), Greenlee (tools and test instruments) and Jacobsen (turf care).

Mr. Stallard also highlighted the company’s near-complete wind-down of Textron Financial, where roughly US$300-million in assets are still up for sale.

“With more external financing available, we think further wind down of the captive portion of Textron Financial would be feasible, making the Textron balance sheet more attractive,” he said.

With its industrial business gone, Textron would be left with three operating divisions — Cessna, Bell and Systems.

“The crown jewels are Cessna and Bell, and individually there are few synergies between the two divisions,” Mr. Stallard said. “We see these assets as being potentially attractive to different buyers, especially with the obstacles of Industrial and Textron Financial theoretically sorted. That would only leave the collection of defense assets in Systems to go, which could find buyers in a consolidating industry.”

It should be noted Textron has not indicated it wants to pursue any of these options.

Mr. Stallard pointed out the company thinks its industrial assets are worth keeping, and management has shown no desire for going private.

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