Economy

United Technologies, Raytheon both gain on $121 billion merger

United Technologies, Raytheon both gain on $121 billion merger

"An RTN-UTX deal may be a signal (a siren?) that 1) this USA defense cycle is peaking, and firms need to start repositioning for growth in 2021 and beyond; 2) Maybe the commercial aerospace outlook is looking wobbly too and Western firms need to hedge against fallout from a U.S".

The all-stock deal will merge Raytheon with United Technologies' aerospace unit that would combine the aviation and defence sectors, bringing the two major US-based defence suppliers under one roof. We don't have to go to China.

The new entity will be called Raytheon Technologies Corp. when the deal closes in the first half of 2020, after United Technologies completes the separation of its Otis elevator and Carrier air-conditioner businesses, the companies said in a statement Sunday.

The new defense and aerospace company would be second only to Boeing in the US, according to the most recent Forbes 500 rankings by annual revenue.

"Raytheon Technologies will continue a legacy of innovation with an expanded aerospace and defense portfolio supported by the world's most dedicated workforce", said Tom Kennedy, Raytheon's current chairman and CEO.

The new company will be named Raytheon Technologies Corporation. Raytheon will contribute seven of the 15 board positions, including the lead director. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020 as previously announced. The merger is expected to result in more than $1 billion in cost synergies by the end of the fourth year.

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

The headquarters of Raytheon Technologies will be in the Boston metro area, the companies say. A deal with United Technologies would allow Raytheon to expand into commercial aviation.

United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns that the rise of global trade protectionism will weigh on the flow of goods through air traffic. Raytheon is now based in Waltham, Mass., while United is based in Farmington, Connecticut. It could also push other defence contractors, such as Lockheed Martin Corp., to explore expanding their commercial businesses.

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.

Callan also sees "some overlap in the defense portfolios" for the two companies, primarily through the Mission Systems segment of Collins Aerospace.


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