Raytheon and United Technologies in merger talks: WSJ report

Raytheon and United Technologies in merger talks: WSJ report”

Logo of the USA defense company Raytheon is pictured at an worldwide military fair in Kielce, Poland September 7, 2017.

The Wall Street Journal is reporting that this weekend the management of defense contractor Raytheon agreed to merge in an all-stock deal with United Technologies (UTC). We don't have to go to China.

By the time the deal closes, United Technologies is expected to have finished spinning off its Otis and Carrier businesses - a move that was announced previously, as part of a focus on aerospace and engines. It would be the largest supplier of equipment to the U.S. military after Lockheed Martin.

United Technologies and Raytheon appear to have little overlap in their businesses, an argument the companies could make once US antitrust regulators start scrutinizing their merger.

Waltham-based Raytheon was founded in 1922 and makes missiles - including the Patriot system - and cybersecurity tools. United Technologies' current Chairman and CEO Greg Hayes will be its CEO. The new company's name will be Raytheon Technologies Corp. - and it's expected to have almost $74 billion in annual sales. The company's board will have eight directors from United Technologies and seven from Raytheon. The timing of the separation of Otis and Carrier is not expected to be affected by the proposed merger and remains on track for completion in the first half of 2020.

However, Pentagon spending is projected to slow down after an initial boost under Trump.

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.

For Raytheon, the agreement provides exposure to the commercial aerospace sector through the United Technologies' unit, which produces everything from high-value jet engines competing with GE, to cockpit controls, airplane seats and cabin interiors.

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

Greater heft would enhance the ability of United Technologies to withstand cost pressures from customers such as Boeing Co. and Airbus SE, said Rothacker, the Bloomberg analyst. It could also push other defense contractors, such as Lockheed Martin Corp, to explore expanding their commercial businesses.

Callan also sees "some overlap in the defense portfolios" for the two companies, primarily through the Mission Systems segment of Collins Aerospace. Citigroup Inc was financial adviser to Raytheon, and RBC Capital Markets LLC provided a fairness opinion.

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