After news of their potential merger leaked on Saturday, Raytheon and United Technologies Corp. announced on Sunday that UTC’s aerospace business and Raytheon will merger to create a $73.6 billion aerospace defense business that is a leader in defense electronics, weapons systems, cyber security, engines for military and commercial aircraft, air traffic management, military radios, a wide range of aircraft avionics systems, position, navigation and timing systems, and more.
Under terms of the all-stock transaction, UTC shareholders will own a 57 percent stake in the new Raytheon Technologies and Raytheon shareholders will hold a 43 percent share of the company. The deal is expected to close in the first half of 2020 and the companies don’t foresee any impact on the planned divestiture by UTC of its Otis and Carrier segments, which remain on track for their respective separations in the first half of 2020 as well.
The companies will host a joint investor call at 8 a.m. Eastern Time on June 10 to discuss the pending deal.
“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” Greg Hayes, chairman and CEO of UTC, said in a statement. “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 customers’ highest priorities. Merger our portfolio will also deliver cost and revenue synergies that will create long-term value for our customers and shareowners.”
Raytheon Technologies will be headquartered near Boston and the company will retain a corporate presence in its existing locations in Waltham, Mass. and Farmington, Conn. Hayes will be CEO of the new company and Tom Kennedy, Raytheon’s chairman and CEO, will be executive chairman. Two year after the deal closes, Hayes will become chairman and CEO. The board of Raytheon Technologies will consist of eight directors from UTC and seven from Raytheon, which will also provide the lead director.
Under terms of the deal, Raytheon will consolidate its existing four primary segments into two, Intelligence, Space & Airborne Systems, and Integrated Defense & Missile Systems. UTC’s Collins Aerospace and Pratt & Whitney segments will make up the other two businesses of Raytheon Technologies.
If the merger closed this year, Raytheon Technologies would have an estimated $9.3 billion in operating earnings and around 12.6 operating margin. The companies expect Raytheon Technologies will return $18 billion to $20 billion in capital to shareholders in the first three years after the merger closes. They said the deal will be tax-free.
Presentation slides that will be part of the Monday morning investor call say that Raytheon Technologies will generate around $8 billion in pro forma free cash flow by 2021 and achieve around $1 billion in gross annual cost synergies by the fourth year of operation.
Raytheon Technologies will trade on the New York Stock Exchange under the ticker, “RTX.” Raytheon’s financial adviser on the deal is Citigroup Global Markets and UTC is being advised by Morgan Stanley, Evercore, and Goldman Sachs.
Raytheon Technologies would be the third largest aerospace and defense company in the world, following Boeing, which has about $100 billion in annual sales and Europe’s Airbus Group, which has around $74 billion in annual sales, and ahead of Lockheed Martin, which has around $54 billion in annual sales. The company’s aircraft engines, which are sold through UTC’s Pratt & Whitney division, are used on Boeing and Airbus passenger planes. Raytheon and UTC are platform agnostic.
Domestic business would represent about 55 percent of Raytheon’s sales and defense around 54 percent.