Concerns about scale of merged entity behind critical supply of military equipment
United Technologies and Raytheon agreed to an all-share merger of equals that will create a new aerospace and defence giant and challenge the industry’s long-standing pecking order. Under the terms of the deal, UTC will merge its aerospace business with Raytheon to form a $120bn powerhouse. It will be a critical supplier of military equipment and rank as the second-largest defence contractor by revenue, after Lockheed Martin but ahead of Boeing. On completion of the deal, UTC shareholders will control 57 per cent of the new while the remainder will be owned by Raytheon shareholders, who will receive 2.3348 shares in the new combined company for each existing share. UTC will control eight of the 15 board seats, with the rest to come from Raytheon. The deal is expected to close in the first half of 2020, soon after UTC completes the previously announced spin-off of its Otis elevator and Carrier building-systems businesses. UTC chairman and chief executive Greg Hayes will the combined company and Raytheon’s Tom Kennedy will serve as chairman. After two years, however, Mr Hayes will take on both roles of CEO and chairman. The deal will provide Raytheon and UTC with scale and diversification across defence and commercial aerospace and could help the combined weather any slowdowns. Analysts have warned that, after an unprecedented boom in commercial aviation over the past decade, weaker growth could slow production.
Patriot-missile maker Raytheon, which has suffered a 10 per cent fall in its share price over the past year, had a market value of $52bn based on its last closing stock price, and net debt of about $4bn. Shares in UTC have risen 3.4 per cent in the past year, giving it a market value of $114bn including the units of its business that will not be part of the tie-up with Raytheon. By contrast, it has net debt of $44bn. This creates the broadest aerospace and defence supplier possible. There’s no overlap and it gives them enormous critical mass but . . .
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