According to the news report by Bloomberg, United Technologies Corp. has agreed to acquire Raytheon Co. via an all-stock deal. This is one of the biggest transactions ever to take place in this industry.
When the deal is closed in the early part of 2020, the new entity formed will be called Raytheon Technologies Corp., and it will be a defense and aerospace giant that will see a total of $74 billion in annual sales.
In a joint statement on Sunday, the two companies announced that prior to the deal being closed, United Technologies would finish the separation of its Carrier air-conditioner as well as Otis elevators businesses.
Despite being termed a merger between two equal companies, United Technologies’ current shareholders will own most of the stock in the new company.
The Chief Executive Officer of United Technologies Greg Hayes issued a statement that the combination of the two companies would define the future of the aerospace and defense industry.
The new company will see the combining of the Pratt & Whitney F-35 jet engines for fighter planes from United Technologies with the missile defense product range from Raytheon. The two companies will also combine their expertise in munitions, radars and cybersecurity in this new aerospace and defense giant.
United Technologies manufactures both military as well as commercial engines, while Raytheon is mostly focused on defense related products. According to Bloomberg Intelligence analyst Douglas Rothacker, this deal is mostly a diversification strategy to create a contractor that will be a behemoth in the aerospace and defense industry.
A condition of this deal is that United Technologies’ Hayes will hold the position of CEO in the new company, while Raytheon’s current Chief Executive Officer, Thomas Kennedy, will take on the role of Executive Chairman. However, three years after the closure of the deal, Hayes will take over both positions and become Executive Chairman and CEO of the new company.
According to the terms of the deal, Raytheon’s shareholders will be given 2.3348 shares for each Raytheon share they own in the new company. However, at the end of the day, United Technologies’ shareholders will own 57% of Raytheon Technologies, while Raytheon’s current shareholders will have a 43% stake.
7 of the 15 board positions will be contributed by Raytheon. This will include the position of lead director of the board.
When contacted by the media on Sunday, the United Technologies spokesperson declined to comment on whether the company would pay a premium for Raytheon once the Carrier and Otis separations are completed. However, things are expected to be made cleared as there is a joint press conference scheduled to be held on Monday, June 10.
This massive deal is the climax to a dramatic revamp that United Technologies has undergone under the leadership of Hayes, who took over at CEO in 2014. At the time of his takeover, he promised that he would going after mega-transactions.
True to his word, Hayes has made some massive deals for United Technologies. Last year, he closed a $23 billion purchase of Rockwell Collins, the aircraft parts supplier. And now, with this deal with Raytheon, Hayes has transformed United Technologies into an aerospace colossus that offers not just engines and missiles but a whole range of products such as radars as well as cockpit electronics.
Both Raytheon as well as United Technologies have gained over 20% in the stock market so far this year to June 7, and are in line with the S&P’s index of the aerospace and defense industry. United Technologies closed the trading week on June 7 with a share price of $132.15, and a market value of $114 billion, while Raytheon closed trading at $185.91 per share and a market capitalization of $52 billion.