United Technologies CEO: This was the ‘magic moment’ when we decided to break up the company

United Technologies Chairman and CEO Gregory Hayes said on Tuesday that the decision to break up the conglomerate came when the board realized that the company’s three businesses could survive on their own.

“There was no cross-subsidy required, and that was, I think, the magic moment when the board said that we don’t really need to be together,” Hayes said on CNBC’s “Squawk on the Street.” “The question is should we be together?”

United Technologies shares were trading down nearly 6 percent on Tuesday after the company — one of the last U.S. conglomerates — said it planned to split into three companies. United Technologies will focus on aerospace, combining its Rockwell Collins unit with its Pratt & Whitney business. The company plans to spin off to shareholders Otis, which manufactures elevators, escalators and moving walkways, and Carrier, which makes a variety of products including refrigerators and HVACs.

Hayes said he expects that more focused companies will have improved operating discipline.

The announcement comes as United Technologies’ rivals, including General Electric, have been splitting up to improve their attractiveness to investors. Hayes said that the split will be more simple than GE’s because the three businesses already run by themselves.

Activist investors Dan Loeb of Third Point and William Ackman of Pershing Square Capital Management had pushed for United Technologies to make the same decision.

United Technologies shares have been treading water as investors shy away from stocks of conglomerates in favor of buying more focused companies. Prior to Tuesday’s selloff, United Technologies shares had been basically flat.

“What the investors have told us is ‘Let us diversify. If we want to buy an aero stock, we’ll buy an aero stock,'” Hayes said.

The breakup is estimated to cost $2.5 billion to $3 billion. About $500 million will pay for setting up the IT and tax systems for three companies. About $2 billion would go towards structuring the three companies to minimize taxes. Tax restructuring is also why the company expects the separation to be completed in 2020, because the tax structures alone will take about 18 months.

Hayes said it will be looking to minimize costs, and the final tally could be lower than announced.

United Technologies’ last planned spinoff of its Sikorsky aircraft business resulted in the unit being sold. Hayes said that the only discussions about selling have been about its fire and security businesses — now a part of Carrier.

“If somebody comes forward with a compelling offer, we’ll certainly listen. I think the hard part for both Carrier and Otis Elevator is that the markets are relatively concentrated and antitrust is certainly tough,” he said.

Hayes will remain the chairman and CEO of United Technologies. Leaders for Otis and Carrier have not yet been announced.

Like many U.S. companies, United Technologies has been hurt by the trade war. Hayes said on Tuesday that Carrier has raised its prices three times so far this year to cover tariff costs.

“I think trying to find a rational, reasonable solution is imperative here in the near-term,” Hayes said, adding that tariffs don’t bring jobs back to the U.S. Separately he added that the threat of inflation is more worrisome to him than the Federal Reserve raising interest rates, as it has been this year.

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