Raytheon, United Technologies to merge

Andrew Cummings
June 10, 2019

United Technologies Corp agreed on Sunday to combine its aerospace business with USA defense contractor Raytheon Co and create a new company worth more than $120 billion, in what would be the industry's biggest ever merger.

"An RTN-UTX deal may be a signal (a siren?) that 1) this USA defense cycle is peaking, and firms need to start repositioning for growth in 2021 and beyond; 2) Maybe the commercial aerospace outlook is looking wobbly too and Western firms need to hedge against fallout from a U.S".

The deal would reshape the competitive landscape by forming a conglomerate which spans commercial aviation and defense procurement. It would be the largest supplier of equipment to the USA military after Lockheed Martin.

A United Technologies-Raytheon merger has always been speculated on by analysts and investors as the two companies operate mainly in different segments, meaning a deal is likely to attract less scrutiny from regulators than other mergers between big defense players. The merger is expected to be completed in the first half of 2020, once Carrier and Otis are successfully separated from United Technologies.

Chinese authorities scrutinized the acquisition of airplane parts maker Rockwell Collins closely, given the companies' footprint in that country's market. This resulted in the deal closing in November, 2018, as opposed to the third quarter of that year, which the companies initially targeted. The company's board will have eight directors from United Technologies and seven from Raytheon.

Under terms, Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share they hold.

Following Saturday reports that a merger was imminent, the two firms made the news official Sunday, launching a website about the planned all-stock deal.

A person familiar with the matter told the newspaper that United Technologies is likely to own a majority of the combined company.

"Today is an exciting and transformational day for our companies, and one that brings with it tremendous opportunity for our future success", said Tom Kennedy, Raytheon Chairman and CEO.

Raytheon and United Technologies are combining in what they describe as a merger of equals.

United Technologies isn't paying a premium for Raytheon, taking into account the separation of the Otis and Carrier businesses, according to a person familiar with the matter, who asked not to be identified because the information is private.

Raytheon is best known for its Patriot air defence systems nd its Tomahawk cruise missiles.

However, Pentagon spending is projected to slow down after an initial boost under Trump.

United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns that the rise of global trade protectionism will weigh on the flow of goods through air traffic.

United Technologies was previously a bigger player in the defence sector.

This weekend, Raytheon and United Technologies announced their plans to merge into Raytheon Technologies Corporation, which would become the second largest aerospace company in the world after Boeing, with annual sales expected in the neighborhood of $74 billion.

Callan also sees "some overlap in the defense portfolios" for the two companies, primarily through the Mission Systems segment of Collins Aerospace. Shearman & Sterling LLP was legal adviser to Raytheon.

Morgan Stanley, Evercore Inc and Goldman Sachs Group Inc were financial advisers to United Technologies, while Wachtell, Lipton, Rosen & Katz was its legal adviser.

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