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Raytheon, United Technologies, joining operations

Jun '19
Pic: United Technologies
Pic: United Technologies
Raytheon Company, a leading defence company, and United Technologies, a leading aerospace company, comprising Collins Aerospace and Pratt & Whitney, are merging. The two have entered into an agreement to combine in an all-stock merger of equals. The move will offer a complementary portfolio of platform-agnostic aerospace and defence technologies.

The transaction will create a premier systems provider with advanced technologies to address rapidly growing segments within aerospace and defence. The combined company, which will be named Raytheon Technologies Corporation, will offer expanded technology and research and development capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defence strategies of the US and its allies and friends. The combination excludes Otis and Carrier, which are expected to be separated from United Technologies in the first half of 2020.

Raytheon Technologies will be headquartered in the greater Boston metro area, and will retain a corporate presence in existing locations. The combined company’s board of directors will have 15 members, consisting of 8 directors from United Technologies and 7 from Raytheon, with the lead director from Raytheon.

The combined company will have approximately $74 billion in pro forma 2019 sales. With a strong balance sheet and robust cash generation, Raytheon Technologies will enjoy enhanced resources and financial flexibility to support significant research and development and capital investment through business cycles.

Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies, Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share. Upon completion of the merger, United Technologies shareowners will own approximately 57 per cent and Raytheon shareowners will own approximately 43 per cent of the combined company on a fully diluted basis.

The merger is expected to close in the first half of 2020, following completion by United Technologies of the previously announced separation of its Otis and Carrier businesses. 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. The merger is intended to qualify as a tax-free reorganisation for US federal income tax purposes.

“Today is an exciting and transformational day for our companies, and one that brings with it tremendous opportunity for our future success. Raytheon Technologies will continue a legacy of innovation with an expanded aerospace and defence portfolio supported by the world’s most dedicated workforce,” said Tom Kennedy, Raytheon chairman and CEO. “With our enhanced capabilities, we will deliver value to our customers by anticipating and addressing their most complex challenges, while delivering significant value to shareowners.”

“The combination of United Technologies and Raytheon will define the future of aerospace and defence,” said Greg Hayes, United Technologies chairman and CEO. “Our two companies have iconic brands that share a long history of innovation, customer focus and proven execution. By joining forces, we will have unsurpassed technology and expanded R and D capabilities that will allow us to invest through business cycles and address our customers’ highest priorities. Merging our portfolios will also deliver cost and revenue synergies that will create long-term value for our customers and shareowners.”

The merger establishes a broad and complementary portfolio of platform-agnostic capabilities across the high-growth segments of aerospace and defence, reducing risk of concentration in any individual platform or programme.

With a combined annual company and customer funded R and D spend of approximately $8 billion, seven technology Centres of Excellence, and over 60,000 engineers, the company will develop new, critical technologies faster and more efficiently than ever before. Areas of joint advancement include, but are not limited to hypersonics and future missile systems; directed energy weapons; intelligence, surveillance, and reconnaissance (ISR) in contested environments; cyber protection for connected aircraft; next generation connected airspace; and advanced analytics and artificial intelligence for commercial aviation.

Robust free cash flow growth and a strong balance sheet will support continued investment and return of capital to shareowners. The combined company expects to return $18 to $20 billion of capital to shareowners in the first 36 months following completion of the merger. As a result of the combination, the company also expects to capture more than $1 billion in gross annual run-rate cost synergies by year four post-close, with approximately $500 million in annual savings returned to customers. In addition, the combination presents significant long-term revenue opportunities from technology synergies. (SV)

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