United Tech-Raytheon merger set for launch

Like the Power Rangers’ mechanised dinosaurs coming together to create a huge rocket-toting robot behemoth, two of the defence industry’s biggest names are set for the sector’s biggest-ever merger, building an arms-dealing giant worth an estimated $121bn.

United Technologies, the conglomerate that owns businesses making everything from Otis elevators to Chubb door locks, is planning to spin off its non-aerospace companies, then merge its existing aerospace division with Tomahawk-missile-making Raytheon, if United States antitrust regulators approve the deal. It will be the world’s second-largest defence company, behind Boeing.

The two companies argue they have very limited existing business overlap, with United Technologies specialising in supplying electronics to commercial plane makers, while Raytheon mostly manufactures guided missiles such as the anti-aircraft Patriot, which it sells to the US government for up to $5 million each.

Monday, US President Donald Trump told business news network CNBC that while he hopes the merger goes forward, he is concerned about how the tie-up could impact competition. 

“I hope the Raytheon deal, I hope it can happen. But I don’t want to see where we have one less person that can compete for an order. I don’t want to see that. It’s no good,” Trump said in an interview with CNBC.

The new company, 57 percent owned by United Technology’s shareholders, would be named Raytheon Technologies Corporation and be headed by United Technology’s CEO Greg Hayes. Raytheon shareholders are set to receive 2.3 shares in the combined company for each Raytheon share currently owned.

The new company will also assume about $26bn in net debt, but the two companies say it will return between $18bn and $20bn of capital to shareholders in the first three years after the merger.

High demand

US military contractors are not short of customers. Besides the huge contracts awarded every day by the US military itself, American arms dealers are in high demand around the world. Raytheon, for example, supplies countries from Poland to Saudi Arabia.

With no signs of global peace breaking out any time soon, demand for weaponry and fighter jets remains high. Under Trump’s administration, US defence spending is expected to rise again in 2020. Annual defence spending peaked in 2011, under President Barack Obama, at $711bn.

In 2018, the US spent $634bn on its military, according to SIPRI data. That is roughly equivalent to the combined defence spending of China ($239bn), India ($67bn), Saudi Arabia ($66bn), Russia ($64bn), France ($60bn), the UK ($47bn), Germany ($46bn) and Japan ($45bn).

The United-Raytheon deal is expected to close in early 2020, after United’s non-aerospace businesses take flight, Reuters reported.