Raytheon and United Technologies announce merger agreement

10 June, 2019, 23:58 | Author: Regina Silva
  • United Technologies and Raytheon talk about creating second-largest defense giant

Donald Trump has warned he is a "little concerned" that a merger between two of the US's major defence giants could reduce competition.

The US spends hundreds of billions of dollars each year with defence firms.

The two companies argue they have very limited existing business overlap, with United Technologies specialising in supplying electronics to commercial plane makers, while Raytheon mostly manufactures guided missiles such as the anti-aircraft Patriot, which it sells to the U.S. government for up to $5 million each.

Mr Trump said the merger could harm competition and make it more hard for the USA government to negotiate defence contracts.

"I want to see that we don't hurt our competition", he said in an interview with USA broadcaster CNBC. The Pentagon would be one of the new company's largest customers. I don't want to see that. United Technologies' current chairman and chief executive Greg Hayes will be its CEO. The new company will also assume about $26 billion in net debt, they added. The deal faces detailed scrutiny from U.S. competition regulators.

But the proposed merger is not expected to affect plans by United Technologies to streamline by spinning off its Otis elevator and Carrier building-systems business into separate companies, expected to happen next year. United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas Raytheon mainly supplies the USA government with military aircraft and missile equipment. Raytheon Chairman and CEO Tom Kennedy will be appointed executive chairman.

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"When I hear United and I hear Raytheon, when I hear they're merging, does that make it less competitive?" The United Technologies-Raytheon merger would be the biggest ever in defence.

"The combined company, valued at more than $100 billion after planned spinoffs, would be the world's second-largest aerospace-and-defense company by sales behind Boeing Co., with annual revenue of roughly $74 billion this year", reports WSJ.com.

United Technologies provides plane makers with electronics, communications and other equipment, while Raytheon primarily supplies the USA government with military aircraft and missile equipment. 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 fell nearly 2 per cent.

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. Combined revenue would reach $80 billion in 2020.

The merger, if approved by the government and the two companies' shareholders, would create what the Washington Post described as a "military-industrial behemoth" with the power to rival Lockheed Martin, the world's largest defense contractor. United Technologies, comprised of Collins Aerospace and Pratt & Whitney, operates UTC Aerospace in Foley.

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