Going Down, Please

For a month the battle between two billion-dollar manufacturing giants raged in boardrooms, courts and newspaper financial columns. Then overnight last week one of the nation's bitterest takeover struggles ended. Otis Elevator Co., the world's leading manufacturer of elevators and escalators, stopped fighting a bid from United Technologies Corp. (formerly United Aircraft), the world's largest builder of aircraft engines, to buy all shares tendered to it by Otis stockholders. By week's end, when the offer expired, United claimed that it had bought more than half of Otis' 8.1 million outstanding common shares at $44 each, giving it control of the firm that Elisha Otis founded in Yonkers, N.Y., 122 years ago. The price for even half of the Otis shares would be about $180 million.

United launched its bid on Oct. 15, when it offered to buy 4.5 million shares --55% of Otis--at $42 each. Behind the move lay two years of planning by United Chairman Harry J. Gray to end the firm's heavy dependence on Government contracts, which became increasingly scarce as the Viet Nam War wound down. In 1970, when United earned a $45.5 million profit on sales of $2.4 billion, 53% of its business came from Washington. By 1974, the Hartford, Conn.-based company had reduced that to a third of $3.3 billion annual sales. One reason: it acquired Essex International, Inc., a major producer of electromechanical wire. That move gave United a foothold in both the auto and construction industries and was largely responsible for lifting profits last year to $104.7 million, from $58.1 million in 1973. Still, United was determined to diversify further in order to reduce Government business to 25% of total sales.

Last July Felix Rohatyn, a partner in the investment banking firm of Lazard Freres who has since become chairman of New York's Municipal Assistance Corporation, suggested Otis to United as a ripe acquisition prospect. Otis, although No. 1 in its industry, has had a slowdown in orders because of the worldwide decline in construction starts on high-rise buildings. Still, the company gets a steady and reliable flow of business--about half its revenues--from maintenance of existing installations. Also, more than half of its 1974 sales of $ 1.1 billion came from overseas, where United would like to be bigger.

Otis resisted fiercely. Chairman Ralph Weller labeled United's initial $42 offer "totally inadequate" (the stock was then selling for $37.63) and asked Morgan Stanley & Co., an investment banking house, to find a "friendly" partner. Two weeks later, Otis won a preliminary injunction from the New York federal district court blocking United's offer on the ground that the company did not spell out eventual merger plans. Undaunted, United resubmitted its offer, changing it to a bid to buy "any and all" Otis shares. Early last week Otis announced that it had received a last-minute feeler for a takeover from another, unidentified corporation. But the other company could not raise all of the cash in time, and Otis' managers were uncertain that they could win a long legal battle with United. In post-midnight talks last week, United decided to sweeten its offer by $2 a share, and Otis agreed to drop its opposition.

Wall Street analysts generally viewed the takeover skeptically. They concede that the acquisition of Otis will boost United's earnings next year, but several feel that United would have been better off to invest the money it is paying for Otis shares in its own operations, notably development of fuel cells. The collapse of many jerry-built conglomerates has made Wall Streeters distrust most combinations of unrelated businesses. One analyst suggested sarcastically that United might start making elevators with a rotor on top. United obviously feels that there are greater profits prospects in diversity than in staying put in the engine market, where it faces growing competition.

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