Published: Mon, June 10, 2019
Markets | By Otis Pena

Raytheon and United Technologies announce merger agreement

Raytheon and United Technologies announce merger agreement

UTC chief executive Greg Hayes, when asked about the comments, said he would talk to the president later on Monday. United Technologies has a current market value of $114 billion while Raytheon's is about $52 billion.

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. The companies forecast returning $18 billion to $20 billion to shareholders within three years following merger completion.

While United Technologies and Raytheon have some common customers, their business overlap is limited, an argument the companies plan to make once USA antitrust regulators start scrutinizing the merger.

The deal brings together two companies that have been intertwined with America's technological explosion of the past almost 100 years. Raytheon Chairman and CEO Tom Kennedy will be appointed executive chairman. It would not inherit United's Carrier air conditioner business or its Otis elevator company, both of which are being spun off under the terms of an earlier deal.

Chinese authorities scrutinized the acquisition of airplane parts maker Rockwell Collins closely, given the companies' footprint in that country's market.

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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. This resulted in the deal closing in November 2018, as opposed to the targeted third quarter. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced. With a strong balance sheet and robust cash generation, Raytheon Technologies will enjoy enhanced resources and financial flexibility to support significant R&D and capital investment through business cycles. Apart from developing new and critical technologies, the companies want to make advancements in developing hypersonics and future missile systems and directed energy weapons.

Analysts say a merger of UTC, whose divisions include the aero-engine maker Pratt & Whitney, and Raytheon, maker of the Tomahawk and the Patriot missile systems, would be likely to re-shape the defence sector as other firms look to consolidate. The company's board will have eight directors from United Technologies and seven from Raytheon.

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

It would be an all-stock deal.

The blockbuster deal caps a dramatic revamp of United Technologies under Hayes, who took the reins at the industrial conglomerate in 2014 with a vow to pursue big transactions. That would top giants like Lockheed Martin Corp. and Northrop Grumman Corp.

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