United Technologies Announces Merger With Raytheon, Headquarters Will Leave Connecticut

Thursday, 13 Jun, 2019

Raytheon Co.'s planned merger with United Technologies Corp.is under Pentagon review even though military leaders won't get to make the call on approving one of the biggest defense industry deals ever.

Both companies are to enter an "all-stock merger of equals" to create one super-provider of aerospace and defense technologies.

The United-Raytheon deal is expected to close in early 2020, after United's non-aerospace businesses take flight, Reuters reported.

In a conference call Monday on the news, United Technologies CEO Greg Hayes addressed this question.

'By joining forces, we will have unsurpassed technology and expanded R&D [research and development] capabilities.

That means it still trails Boeing Co.in heft, but the deal may give the soon to be renamed Raytheon Technologies Corp., leverage with suppliers and contractors over other heavyweights in the industry like Lockheed Martin Corp. and Northrop Grumman Corp. The merger will happen after UTC has spun out its non-aerospace companies - Carrier Air Conditioning and Otis Elevator, a move that's already well underway. First, he sold United Technologies' Sikorsky helicopter unit to Lockheed Martin Corp. for $9 billion in 2015 and then a year ago acquired avionics-maker Rockwell Collins Inc. for $30 billion in what was then the largest aerospace deal.

"Merging our two companies brings Raytheon's deep expertise to vehicle integration, advanced guidance and control and payload and combines it with UTC's world-class propulsion technology", he said.

The deal attracted the attention of President Donald Trump who said in an interview with CNBC that he's concerned about anti-trust issues, as the combination creates the second biggest aerospace company in the U.S.

Raytheon shareowners would receive 2.3348 shares in the combined company for each Raytheon share.

Hayes will hold the CEO job in the combined organization, while Raytheon CEO Thomas Kennedy will become the executive chairman.

The headquarters will be in the Boston area; now United Technologies is based on Farmington, Connecticut, while Raytheon's headquarters is in Waltham, Massachusetts.

"When I hear United and I hear Raytheon, which is another incredible company, the missile systems they make are incredible, when I hear they're merging - does that take away more competition?"

Meanwhile United Technologies two main businesses are engine maker Pratt & Whitney and Collins Aerospace, which manufactures equipment for commercial, regional and military aircraft such as seats, landing gears and sensors. United Technologies closed the trading week on June 7 with a share price of $132.15, and a market value of $114 billion, while Raytheon closed trading at $185.91 per share and a market capitalization of $52 billion.

Eventually, the companies expect the merger will cut $1 billion in costs annually, half of which will be returned to customers.

Citigroup Global Markets was the financial adviser to Raytheon while RBC Capital Markets provided a fairness opinion and Shearman & Sterling was legal adviser to Raytheon.

Conversely, United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns that the rise of worldwide trade protectionism will suppress economic growth and weigh on the flow of goods through air traffic.