United Technologies’ $121bn Merger with Raytheon

By Ilya Korzinkin - Date: 13/07/2019

Overview of the deal

  • Acquirer: United Technologies Corporation (NYSE: UTX)

  • Target: Raytheon Company (NYSE: RTN)

  • Estimated value: $121bn

  • Announcement date: June 2019

  • Acquirer Advisors: Morgan Stanley, Goldman Sachs, Evercore

  • Target Advisors: Citigroup, RBC Capital Markets

United Technologies Corporation (UTX) is acquiring all outstanding shares of Raytheon Company (RTN) in an all-stock deal at an estimated transaction value of ~$121bn. Once the deal is completed, RTN shareholders will receive 2.3348 shares of the NewCo, that will trade on the New York Stock Exchange under the name ‘Raytheon Technologies’ (RTX), with UTX taking control of 57% of the company on a fully diluted basis, while RTN shareholders will control 43% of the company. Gregory Hayes of UTX will hold the CEO position, whereas Thomas Kennedy of RTN will become executive chairman, and ascend to both roles after ~3 years. The board will consist of 15 members, with 8 partners from UTX and 7 from RTN.

With Raytheon long-wondering of how to create value from their ‘under-utilized’ balance sheet, this perhaps ingenious solution to sell it to United Technologies was proposed and gladly accepted (unanimously) by the company’s board. With cyclical deceleration looming on the horizon due to defence budgets flattening worldwide, UTX, with their diverse portfolio of services looked like a perfect candidate to hedge Raytheon’s defence-sector exposure-related risks.

The NewCo thus is poised to become a multi-industry behemoth conglomerate, and second only to BA (Boeing) in Aerospace and Defence, offering a ‘highly complementary services portfolio aiming to pass on ~$500mm of savings on to customers within the first four years post-transaction’ according to management.

This mega-merger therefore reinforces the trend for scale-hunting and portfolio diversification in the aerospace and defence sector in the face of a potential industry downcycle, however with the market response being unfavourable to say the least, with Bill Ackman, Donald Trump and Daniel Loeb all voicing their concerns, one may wonder whether bigger is always better when it comes to highly specialized and cyclical markets.

“It is largely a diversification play to build an absolute behemoth aerospace and defence contractor” - Douglas Rothacker, aerospace & defence analyst, Bloomberg Intelligence

Acquirer Company Details (United Technologies Corporation, NYSE: UTX)

United Technologies Corporation provides technology products and services to building systems and aerospace industries worldwide. Its Otis segment manufactures passenger and freight elevators, and related products. The company’s Carrier segment provides fire, security, and building automation as well as climate control services and building automation products and related services. Its Pratt & Whitney segment supplies aircraft engines, and its Collins aerospace segment provides a range of security and aircraft maintenance systems and services.

- Founded in 1934, Headquartered in Farmington, Connecticut

- President & CEO: Gregory Hayes

- Number of Employees: 240,000

- Market Cap: $111.07bn - EV: $153.80bn

- LTM Revenue: $18.36bn - LTM EBITDA: $11.08bn

- EV/Revenue: 8.38x - EV/EBITDA: 13.88x

Target Company Details (Raytheon Company, NYSE: RTN)

Raytheon Company develops integrated defence products, services and solutions for defence and other government markets worldwide. The main five segments for Raytheon’s operations are: i) Integrated defence systems ii) Missile systems iii) Intelligence services iv) Space and Airborne systems v) Forcepoint (data security).

- Founded in 1922, Headquartered in Waltham, Massachusetts

- President & CEO: Thomas A. Kennedy

- Number of employees: 67,000

- Market Cap: $51.00bn - EV: $52.70bn

- LTM Revenue: $45.8bn - LT