Carrier Global: Talk of Fire and Security Sale Swirls

The Wall Street Journal reported on April 11 that Carrier CARR is considering selling or spinning off its fire and security segment. That said, it noted that this business review is in the early stages and there is no guarantee the company will follow through with such a transaction. We are maintaining our narrow moat rating and $48 per share fair value estimate for Carrier. We would not expect to make a transaction-related fair value adjustment until either a sale agreement (with a purchase price) is announced or upon completion of a spinoff transaction. If management decides to move forward with a divestiture, it wouldn’t likely close until 2024, in our view.

Since its 2020 spinoff from parent United Technologies, Carrier has monetized assets to simplify its business and improve its balance sheet that was laden with debt following the spinoff. Most notably, Carrier sold its ownership stake in Beijer (for approximately $1.4 billion) and its Chubb fire and security services business (for $2.9 billion of net proceeds). Carrier’s balance sheet is now in great shape with a net debt/forward EBITDA ratio of 1.5 and investment-grade debt.

Considering the size of the fire and security segment (17% of 2022 revenue) and the fact that Carrier had already rightsized its balance sheet, we weren’t expecting a major divestiture. That said, divesting the fire and security business certainly would fit with Carrier’s business simplification strategy as the firm’s remaining businesses would primarily consist of heating, ventilation, air-conditioning, and refrigeration products and solutions. In fact, Carrier’s pro forma business mix would be more like competitor Trane Technologies. That said, we never thought it was unusual or disadvantageous to pair HVACR and fire and security businesses. Indeed, a key tenet of the 2016 Johnson Controls-Tyco International merger was the synergistic relationship between these businesses.