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PRINT EDITION
Raytheon, United Technologies to merge, create aerospace giant
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By HARRY BRUMPTON, KATE DUGUID
REUTERS
  
  

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Monday, June 10, 2019 – Page B1

United Technologies Corp. agreed on Sunday to combine its aerospace business with U.S. defence contractor Raytheon Co. and create a new company worth more than US$120-billion, in what would be the industry's biggest ever merger.

The deal would reshape the competitive landscape by forming a conglomerate that spans commercial aviation and defence equipment. United Technologies provides primarily commercial plane makers with electronics, communications and other equipment, whereas Raytheon mainly supplies the U.S. government with military aircraft and missile equipment.

Raytheon shareholders will receive 2.3348 shares in the combined company for each Raytheon share, the companies said in a statement. The merger is expected to result in more than US$1-billion in cost synergies by the end of the fourth year.

United Technologies shareholders will own about 57 per cent of the combined business, called Raytheon Technologies Corp., which will be led by Gregory Hayes, the current chief executive of United Technologies. Raytheon shareholders will own the remaining stake and Raytheon CEO Thomas Kennedy will be named executive chairman.

United Technologies and Raytheon have market capitalizations of US$114-billion and US$52-billion, respectively.

The deal is expected to close in the first half of 2020, after the previously announced spinoff of United Technologies' Carrier air-conditioning and Otis elevator businesses.

The newly created company is expected to return between US$18billion and US$20-billion of capital to shareholders in the first three years after the deal's completion, the companies said.

It will also assume about US$26-billion in net debt, they added.

Raytheon, maker of the Tomahawk and the Patriot missile systems, and other U.S. military contractors are expected to benefit from strong global demand for fighter jets and munitions as well as higher U.S. defence spending in fiscal 2020, a lot of it driven by the Trump.

However, the Pentagon's spending is projected to slow down after an initial boost under Mr. Trump. A deal with United Technologies would allow Raytheon to expand into commercial aviation, which does not rely on government spending like the defence sector.

United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns the rise of international trade protectionism will weigh on the flow of goods through air traffic. The International Air Transport Association, which represents about 290 carriers accounting for more than 80 per cent of global air traffic, cited these concerns earlier this month, when it said the industry is expected to post a US$28-billion profit in 2019, down from a December forecast of US$35.5-billion.

United Technologies said it is on track to separate Carrier and Otis in the first half of 2020, leaving the company focused on its aerospace business through its US$23-billion acquisition of Rockwell Collins, which was completed in 2018, and the Pratt & Whitney engines business. Chinese authorities scrutinized United Technologies' Rockwell Collins acquisition heavily, given its footprint in that country's market.

This resulted in the deal closing in November, 2018, as opposed to the third quarter of that year, which the companies initially targeted.


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