Raytheon and United Technologies in merger talks: WSJ report

Daniel Fowler
June 10, 2019

UTX and RTN have followed in the footstep of Harris (HRS) and L3 Technologies (LLL), which past year announced an all-stock merger. Upon completion of the merger, United Technologies shareowners will own approximately 57 percent and Raytheon shareowners will own approximately 43 percent of the combined company on a fully diluted basis.

Apart from developing new and critical technologies, the companies want to make advancements in developing hypersonics and future missile systems and directed energy weapons.

Trade tensions between the United States and China were blamed at least partly by analysts for that delay, but a source close to the deal said the companies did not expect this to be repeated because Raytheon does not do business in China.

For Raytheon, the agreement provides exposure to the commercial aerospace sector through the United Technologies' unit, which produces everything from high-value jet engines competing with GE, to cockpit controls, airplane seats and cabin interiors.

The new company will be named Raytheon Technologies Corporation. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced. A conference call is scheduled for Monday morning.

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Hayes will become the CEO of Raytheon Technologies. Along with last year's $23 billion acquisition of aircraft-parts supplier Rockwell Collins, the Raytheon deal remakes United Technologies as an aerospace giant with products including not only jet engines and missiles but other items like cockpit electronics and radars.

"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".

"Aerospace suppliers have been, and will continue to be, under vast pressure from Boeing and Airbus to cut costs", he said.

Hayes spurned a merger offer from Honeywell International Inc.in 2016, saying the deal undervalued his company and would face customer opposition. Some of that overlap may not be readily apparent because programs are classified, he wrote. The companies said they will be able to develop new technologies more quickly with combined R&D spending of $8 billion annually and more than 60,000 engineers. There is no change to the 2019 financial outlook for either company. United Technologies, comprised of Collins Aerospace and Pratt & Whitney, operates UTC Aerospace in Foley. The merger is expected to result in more than $1 billion in cost synergies by the end of the fourth year.

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