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United Technologies, Raytheon To Merge In All-stock Deal

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Aerospace company United Technologies Corp. (UTX) and defense contractor Raytheon Co. (RTN) have agreed to combine in an all-stock merger. The combined entity, to be named Raytheon Technologies Corp., is expected to have approximately $74 billion in pro forma 2019 sales.

The merger excludes United Technologies' escalator unit Otis and air-conditioner unit Carrier, which are already on schedule for separation in the first half of 2020.

Greg Hayes, United Technologies Chairman and CEO, said, "The combination of United Technologies and Raytheon will define the future of aerospace and defense... Merging our portfolios will also deliver cost and revenue synergies.."

According to the Wall Street Journal, the combined company after the planned spinoffs will be valued at more than $100 billion, only to be behind Boeing Co. as the world's second-largest aerospace-and-defense company by sales.

Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share. Following the conclusion of the deal, United Technologies shareowners will own approximately 57 percent of the combined company, while Raytheon shareowners will own about 43 percent.

Both the Boards of Directors unanimously approved the deal, which is expected to close in the first half of 2020 after the closure of the separation of Otis and Carrier businesses.

The merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

It is expected that the merged entity will return $18 to $20 billion of capital to shareowners in the first 36 months following completion of the merger. The company also expects $1 billion in annual savings after concluding the deal.

Following the deal, Raytheon will consolidate its four businesses into two businesses. These will join United Technologies' Collins Aerospace and Pratt & Whitney units to form the four businesses of Raytheon Technologies.

The new entity's Board of Directors will include 15 members, consisting of 8 directors from United Technologies and 7 from Raytheon, with the lead director from Raytheon.

Raytheon Chairman and CEO Tom Kennedy will be appointed Executive Chairman and Hayes will be named CEO. Hayes will assume the role of Chairman and CEO after two years of the deal closure.

In the transaction, Citigroup Global Markets Inc. is acting as financial advisor to Raytheon, while Morgan Stanley & Co. LLC, Evercore, and Goldman Sachs & Co. LLC are acting as financial advisors to United Technologies.

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