United Technologies-Raytheon Merger to Create Long-Term Value

Daniel Fowler
June 11, 2019

United Technologies' chief executive Hayes will become CEO of the combined company; Raytheon's CEO Thomas Kennedy will become chairman. The Hartford Courant said about 100 UTC jobs would move to MA.

The morning after manufacturers Raytheon and United Technologies announced a blockbuster merger that would create a giant in the aerospace and defense sectors, President Trump said he is "a little bit concerned" about the deal's anti-competitive potential.

Shares of Raytheon rose 1.4 per cent at mid-afternoon.

The International Air Transport Association, which represents about 290 carriers accounting for more than 80 per cent of global air traffic, cited these concerns earlier this month, when it said the industry is expected to post a $28 billion profit in 2019, down from a December forecast of $35.5 billion.

■ The new company would have a stock market value of about $100 billion, nearly double Raytheon's current value, after United Technologies completes the previously announced spinoffs of its Otis elevator and Carrier building services divisions.

■ The new partners billed the deal as a "merger of equals", but United Technologies' CEO will be the new CEO, and its shareholders will hold 57 percent of the new shares.

The Defense Department and big customers like Boeing Co, Lockheed Martin Corp and Northrop Grumman Corp will have a lot of clout in the antitrust review, and may worry about over-reliance on one company for a big suite of products. The deal faces detailed scrutiny from United States competition regulators.

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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.

But they did say the added scale the merger would provide will allow the combined firm to innovate on a higher level while keeping prices low.

Although the two companies have some customers in common, they argue that their business overlap is limited.

"Less than 1 percent of our sales have overlap", he said. "We truly believe we're going to get this done relatively quickly".

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

Both companies have a heavy presence in Alabama, including Raytheon's missile testing and integration facilities on Redstone Arsenal. Under pressure from investors, he proposed the spinoffs of Otis and Carrier. That leaves the aerospace business, anchored by its Pratt & Whitney jet engines and avionics components, including those made by Rockwell Collins, which Hayes bought previous year for $23 billion.

An agreement could also allow for increased scale and shared technology, as well as helping the enlarged company weather any slowdown in the commercial aerospace and defense industry as U.S. companies face mounting challenges due to the trade war launched by USA president Donald Trump against China.

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