Raytheon And United Technologies Are Planning To Merge In A $120 Billion Deal

By Amit Chowdhry ● June 10, 2019
  • Raytheon and United Technologies have entered an agreement to combine in an all-stock merger of equals
  • The combined company will be called Raytheon Technologies Corporation

Raytheon and United Technologies have entered into an agreement to combine in an all-stock merger of equals. This transaction will create a giant systems provider with advanced technologies for addressing the rapidly growing segments within aerospace and defense.

The merger of Raytheon (leading defense company) and United Technologies (a leading aerospace company comprised of Collins Aerospace and Pratt & Whitney) will offer a complementary portfolio of platform-agnostic aerospace and defense technologies.

The combined company will be called Raytheon Technologies Corporation. And it will offer expanded technology and R&D capabilities for delivering innovative and cost-effective solutions aligned with customer priorities and national defense strategies of the U.S. and its allies and friends.

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.

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And upon completion of the merger, United Technologies shareowners will own approximately 57% and Raytheon shareowners will own approximately 43% 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. This merger is intended to qualify as a tax-free reorganization for U.S. federal income tax purposes.

However, the combination excludes Otis and Carrier — which are expected to be separate from United Technologies in the first half of 2020 as announced previously.

The combined company are expected to be $74 billion in pro forma 2019 sales. With a strong balance sheet and strong cash generation, Raytheon Technologies will have enhanced resources and financial flexibility to support significant R&D and capital investment through business cycles.

“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 defense portfolio supported by the world’s most dedicated workforce,” said Raytheon Chairman and CEO Tom Kennedy. “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 merger establishes a broad and complementary portfolio of platform-agnostic capabilities across the high-growth segments of aerospace and defense — which reduces the risk of concentration in any individual platform or program.

“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” added United Technologies Chairman and CEO Gregory Hayes. “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&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 combined companies have highly complementary technology and R&D platforms. And Raythen and United have a combined annual company and customer funded R&D spend of about $8 billion, 7 technology Centers of Excellence, and over 60,000 engineers. And the company will develop new and critical technologies faster and more efficiently than before.

The areas of joint advancement include directed energy weapons, intelligence/surveillance/reconnaissance (ISR) in contested environments, cyber protection for connected aircraft, next-generation connected airspace, and advanced analytics and artificial intelligence for commercial aviation.

The combined companies are expecting to return $18 to $20 billion of capital to shareholders in the first 36 months following the completion of the merger. And 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.

The combined company will have a strong performance-based culture focused on integrity, collaboration, innovation, diversity, and corporate social responsibility. And employees will have expanded opportunities for career development and advancement in high-growth areas along with ongoing engagement in local communities.

Raytheon is also planning to consolidate its four businesses into two businesses — which will be named Space & Airborne Systems and Integrated Defense & Missile Systems. And the new businesses will join Collins Aerospace and Pratt & Whitney to form the four businesses of Raytheon Technologies.

The net debt of the combined company at the time of closing is expected to be about $26 billion with United Technologies expecting to contribute approximately $24 billion. And the combined companies are

The Board of Directors at both companies will be comprised of 15 members, consisting of 8 directors from United Technologies and 7 from Raytheon with the lead director from Raytheon. Tom Kennedy will be appointed Executive Chairman and Greg Hayes will be named CEO of Raytheon Technologies. Two years following the close of the transaction, Hayes will assume the role of Chairman and CEO.

Raytheon Technologies is going to be headquartered in the greater Boston metro area and will retain a corporate presence in existing locations. And the company will be led by a proven leadership team with a strong track record of innovation.

Citigroup Global Markets Inc. is acting as financial advisor to Raytheon and RBC Capital Markets LLC is providing a fairness opinion. And Shearman & Sterling LLP is serving as legal advisor to Raytheon.

For United Technologies, Morgan Stanley & Co. LLC, Evercore, and Goldman Sachs & Co. LLC are acting as financial advisors. And Wachtell, Lipton, Rosen & Katz is serving as legal advisor to United Technologies.