Raytheon and United Technologies announce $121bn merger

Galtero Lara
Junio 12, 2019

Shares of defence contractor Raytheon and United Technologies pared gains yesterday after US President Donald Trump said he was a "little concerned" about their US$121 billion (S$165 billion) merger to create a new aero-defence company. That brought a complaint from U.S. Sen. Obama administration defense secretary Ash Carter told reporters in 2015 that he wanted to "avoid excessive consolidation in the defense industry to the point where we did not have multiple vendors who could compete with one another on many programs". And the company will develop new and critical technologies faster and more efficiently than before.

Trump said competition already has been diminished among defense contractors.

The UTC merger with Raytheon would transform the two companies into a single conglomerate with varied but well-established brands, each in the top tier of its specialty.

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

In a press statement, Pentagon spokesman Lt. Col. Michael Andrews said Ellen Lord, undersecretary of defense for acquisition and sustainment, is "engaging with industry leadership to understand the implications and governance as a result of this acquisition".

The Trump White House has been engaged on the issue as well.

But Shanahan may be kept well-informed on the issues involved because Eric Chewning, his chief of staff, served as head of the Defense Department's industrial base and mergers review office from October 2017 to January. It will be the world's second-largest defence company, behind Boeing. "But I have to negotiate - meaning the United States has to buy things, does that make it less competitive?" I don't know, I don't love that stuff.

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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.

The merger between United Technologies (UTX) and Raytheon (RTN) is likely to build a broad and complementary portfolio of high-growth aerospace and defense products. The combined company is anticipated to have almost $74 billion in pro forma 2019 sales, while Boeing had generated record yearly revenue of $101 billion in 2018.

The deal may also be scrutinized by the Pentagon, and perhaps Congress.

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

The Raytheon-United Technologies merger still has to be approved by the US Justice Department and US Federal Trade Commission.

Raytheon is best known for its Patriot air defense systems, which acquired notoriety during the Gulf War, and its Tomahawk cruise missiles, the long-range weapon that is used by the US Navy.

The net debt of the combined company at the time of closing is expected to be about $26 billion with United Technologies expecting to contribute approximately $24 billion.

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