Raytheon, United Technologies merger to create defense powerhouse

A United Technologies Raytheon merger has long been speculated on by analysts and investors

United Technologies, the conglomerate that owns businesses making everything from Otis elevators to Chubb door locks, is planning to spin off its non-aerospace companies, then merge its existing aerospace division with Tomahawk-missile-making Raytheon, if United States antitrust regulators approve the deal. The deal will return $18 to $20 billion back to shareholders in the first 36 months after closing, expected in the first half of 2020, the companies said in an announcement on Sunday. And they repeatedly said that Raytheon and United Technologies do not compete with one another.

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.

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. Companies have argued that they need greater scale to compete and spend on research and technology. Apart from developing new and critical technologies, the companies want to make advancements in developing hypersonics and future missile systems and directed energy weapons. "Raytheon Technologies will continue alegacy of innovation withan expanded aerospace and defense portfoliosupported by the world's most dedicated workforce", said Tom Kennedy, Chairman and CEO of Raytheon. Hayes will ascend to both roles three years after the deal closes. It's estimated that the merger will generate robust free cash flow and strengthen the balance sheet, thereby helping the new company to enhance shareholder wealth and increase investments.

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' aerospace business makes engines for Airbus as well as the F-35, which was developed by Lockheed Martin and is the most expensive military project in history. The company's board will have eight directors from United Technologies and seven from Raytheon. Most of Raytheon's revenue comes from the Pentagon and US intelligence agencies.

Matt Stoller, fellow at the non-profit Open Markets Institute, said Trump is correct to raise anti-competition concerns over the proposed merger-while expressing skepticism that the president will hold to that position.

Hayes spurned a merger offer from Honeywell International Inc.in 2016, saying the deal undervalued his company and would face customer opposition. At the time, Wall Street analysts anticipated resistance from the Pentagon, as well as planemakers.

The combined companies will have total sales of approximately $74 million in 2019.

The merger, the largest of the year so far, will have to be approved by competition authorities and was questioned by president Donald Trump on Monday.



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