United Technologies Corporation

This is called sum of the parts valuation, and to do it right, you need full information on each of the businesses.

I've done this before on United Technologies, a conglomerate, breaking it down to six businesses and valuing each business and coming up with a total value for the company.

In fact, activist investors, when they target complex companies, often use a variant of this to decide whether they should break up a company.

You could value a multinational by taking each geographic region, Latin America, North America, Asia, Africa, Europe, and value each region separately with different assumptions about growth and risk and perhaps even different currencies in each region, and then add up the valuations to come up with the value for the multinational.

The third danger when you value companies on a disaggregated basis, valued in pieces, is you can miss a big piece and not even realize it.

What am I talking about? Let's suppose you do a sum of the parts valuation.

You take United Technologies, you take each business, and you value each business.

You come up with the values of the six businesses, you add them all up.

And it just so happened they had this really nice business that was growing nicely, very profitable, a lot of core IP, and it was a fully integrated business.

And ultimately, that transaction happened with United Technologies, and we went as part of that transaction.

I want to jump forward.

You just have such an interesting career to SunEdison, if you wouldn't mind.

Like imagine how many world wars and economic collapses they have seen and they've stuck around and have continued to pay their shareholders out money, which goes to reinforce the idea that investing in something like the stock market is a good idea because you can bet the world is going to get bigger and good companies are going to continue to grow and pay their shareholders money.

so that's why pfizer is considered by many to be a really big cornerstone of an investment portfolio so pro tip next up we have amgen that paid me 14.50 for 10 shares also we have utx or united technologies now these guys own otis the elevator brand which usually resides in like super high-end buildings when i used to live in the 1.5 million dollar condo at the high rise in las vegas when i was like 20 they had otis elevators i remember that elevator took me from like the ground level to the 37th floor in like 10 seconds or something ridiculous and my ears would pop so they own that they also own these other brands so check it out they also own carrier pratt and whitney and collins aerospace systems which operates in the airlines and the military sector and you can bet those are fat government contracts that they're operating with So you can also consider this company to be something of a wide moat because they have their tentacles, if you will, in lots of different regions.

And from them, I got paid $7.35.

So anyway, moving on, we have IBM, which is self-explanatory, paid me $8.10. Then we have Target or TGT paid me $44.80, which is really big.

If you're a Walmart or a Target, what's a typical project? It's another store, right? So basically, it's much easier to come up with a typical project for a company which has project after project that looks like the previous one.

But if you're United Technologies or GE, and I ask you, what's a typical project? You can already see it's a much more difficult question to answer.

And this is a question I'm going to have to face with Disney, because depending on the part of Disney I look at, theme parks, movies, broadcasting, a typical project can have very different durations, and the debt should be matched up to that duration.

The second question I'm going to ask you is, what currency are your operations in? What do you get paid on? You see why this matters? If I'm advising Coca-Cola and I say, what kind of debt, and Coca-Cola asks me, what kind of debt should we take? I would expect a significant portion of Coca-Cola's debt to be foreign currency debt.

Rather than talk about this in the abstract, I'm going to take an actual company, a multi-business company, and show you how to do a sum of the parts assessment of the company.

The company I'm going to use is a company called United Technologies.

Have you heard of this? It's like a four-man's GE.

Basically, it's a company that's like GE.

It's a conglomerate, but not in as many businesses.

I didn't want to do GE because I'd have to fill in three pages just with the data, so this will keep it compact.

United Technologies is in six very different businesses, and I've listed them all up.

I mean, they're by division.

There's a company just down the road here called Bloom Energy, which makes what I think are the best fuel cells being made in the world today.

I, for many years, was an advisor to United Technology Corporation, which has a fuel cells division.

And this company, Bloom, is just not much better than the company I was involved with by going to a different technology.

It's called Solid Oxide, the technology of fuel cell.

It was difficult.

Now, if I want to sell to an operating company and it's a company that rolls up entities, but they keep them separate and keep them separate management, well, guess what I've got to do? If I'm selling to United Technologies, for instance, I've got Sikorsky on one side and I've got Ingersoll Rand on the other, whatever.

These are separate brands.

I better build a company that 100% can run by itself without a bunch of intervention.

Think about it.

Think about Carrier, about Otis, about the old United Technologies.

Maybe the executives see the ability to create value and they want it on themselves.

Or maybe the stocks run just a bit, but they don't think the run is over because they recognize how much better the business will be once it's broken up.

So yes, I've got the railroad square.

And of course, we have UTX, United Technologies.

Some of these, I legit do not remember what they are, so I have to be refreshed.

Of course, I got Target.