United Technologies-Raytheon Merger to Create Long-Term Value

Andrew Cummings
June 10, 2019

Monday, US President Donald Trump told business news network CNBC that while he hopes the merger goes forward, he is concerned about how the tie-up could impact competition.

The Wall Street Journal is reporting that this weekend the management of defense contractor Raytheon agreed to merge in an all-stock deal with United Technologies (UTC).

The US spends hundreds of billions of dollars each year with defence firms.

Mr Trump said the merger could harm competition and make it more hard for the USA government to negotiate defence contracts.

Hayes is set to become the leader of the new company: He'll take the titles of chairman and CEO two years after the merger is finalized. "But I want to see that we don't hurt our competition". United Technologies' current chairman and chief executive Greg Hayes will be its CEO.

In a phone interview Sunday evening, executives from both companies said the deal was driven by a desire to create a leading aerospace technology company using state-of-the-art hardware from the defense and commercial aviation industries. The deal faces detailed scrutiny from USA competition regulators.

JP Morgan analyst Seth Seifman said news of the merger was "a surprise, but we see real rationales on both sides in scale, diversification in the face of cyclical uncertainty, and financial benefits". United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas Raytheon mainly supplies the USA government with military aircraft and missile equipment.

On the conference call, CEO Hayes said UTC and Raytheon barely compete against other.

The bigger company will combine United Technologies' Pratt & Whitney F-35 fighter jet engines with Raytheon's Patriot missile-defense products and expertise in areas such as radars, munitions and cybersecurity. Raytheon shareholders are set to receive 2.3 shares in the combined company for each Raytheon share now owned.

United Technologies operates United Technologies Electronic Controls in Huntington, which had employed more than 700 production employees before the parent company moved those jobs to Mexico in 2017 and 2018. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced.

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. United technologies said the merger would lead to $1bn in cost savings.

The newly created company is expected to return between $18 billion and $20 billion of capital to shareholders in the first three years after the deal's completion, the companies said. Combined revenue would reach $80 billion in 2020. That would top giants like Lockheed Martin Corp. and Northrop Grumman Corp. UTC makes jet engines, including those produced by its Pratt & Whitney and Collins Aerospace subsidaries.

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