Trump Raises Concern Over Raytheon-United Tech Merger

Trump Raises Concern Over Raytheon-United Tech Merger
June 12, 2019

 

The Aerospace firm United Technologies (NYSE: UTX) and defense contractor Raytheon (NYSE: RTN) are planning an all-stock merger. The combined market value of Raytheon and United Technologies is roughly $166 billion. The merged defense and aerospace enterprise would stand next only to Boeing in the US, as per the latest Forbes 500 rankings in terms of annual revenue.

Boeing (NYSE: BA), notably, posted over $101 billion in revenue the last fiscal year, while defense industry player Lockheed Martin had revenues of $53.70 billion. The stock price of both United Technologies and Raytheon has gained more than 20% in 2019, surpassing the gains made by the broader market. A record order for aircraft and an increase in defense spending has improved the fortunes of both companies. Despite the positive sentiment about the merger, both stock fell yesterday as the US President Donald Trump raised concerns over possible market monopoly. While Raytheon closed at $177.62, down 5.11% from the previous close, the stock of United Technologies lost 3.96% to end the trading session at $122.94.

The merged entity will be christened as Raytheon Technologies Corp., and is anticipated to have roughly $74 billion in pro forma 2019 revenue. Furthermore, Raytheon Technologies will have its headquarters at Boston. The merger will result in the creation of a huge firm which will have the ability to supply products ranging from “Tomahawk missiles and radar systems to jet engines that power passenger planes and the seats that fill them.”

Notably, the merger will not include Otis, which is the escalator division of United Technologies, and Carrier, the air conditioner unit. These two businesses will be spun off in early 2020.

Raytheon shareholders will be handed over 2.3348 shares in the merged entity for every Raytheon share. Following the merger deal, the Farmington, Connecticut-based United Technologies shareholders will have a stake of about 57% of the combined enterprise, while the Waltham, Massachusetts-based Raytheon shareholders will have roughly 43% ownership. The merger will be structured in such a manner that it will meet the criteria of a tax-free reorganization under the US Federal income tax rules.

The merger deal, which is anticipated to be completed in the first half of 2020, has been approved unanimously by the Boards of Directors of both companies. The deal is expected to close after United Technologies completes separating Carrier air conditioning unit and its Otis elevator business.

The combined entity will pay out $18 billion to $20 billion to shareholders in the first three years that follow the merger. The merger will also result in annual savings of $1 billion.

Following the completion of the merger, Raytheon will unite its four business units into two divisions. These will combine with United Technologies’ Collins Aerospace and Pratt & Whitney divisions to establish the four divisions of Raytheon Technologies.

The merged enterprise will have 15 members in its Director Board, with eight directors from United Technologies and Seven from Raytheon. A director from Raytheon will head the Director Board.

Following the merger, Raytheon Chairman and CEO Tom Kennedy will take the role of Executive Chairman, while Hayes will serve as CEO. Two years after the deal completion, Hayes will assume the position of Chairman and CEO.

Commenting on the merger, Greg Hayes, United Technologies Chairman and CEO, said, “The combination of United Technologies and Raytheon will define the future of aerospace and defense… Merging our portfolios will also deliver cost and revenue synergies.”

For the proposed merger deal, Citigroup Global Markets Inc. is playing the role of financial advisor to Raytheon, while Evercore, Morgan Stanley & Co. LLC, and Goldman Sachs & Co. LLC will serve as financial advisors to United Technologies.

The merger news obviously buoys investors. However, US President Donald Trump has raised concerns that the proposed merger would create a sort of monopoly in the market and purge competition, thereby making it more challenging for the US government to discuss defense agreements.

In an exclusive interview with CNBC, Trump said: “I’m a little concerned about United Technologies and Raytheon.” He further opined that Aerospace firms have “all merged in, so it’s hard to negotiate.”

Raytheon and United Technologies’ executives tried to alleviate fears of the US President by saying that the operations of both firms hardly overlap and will not face any objections from anti-trust regulators.

Raytheon CEO Tom Kennedy told CNBC, “We are complementary, not competitive. I don’t know the last time we competed against United Technologies.”

The stock of Raytheon may remain bearish due to concerns over regulatory approval and Trump’s opposition.

The historical price chart indicates that the stock has failed to break above the resistance level of 185. Furthermore, the stochastic indicator is declining from the bullish zone. As a result, we can anticipate the stock to move down in the short-term.

ray - technical analysis - 12th June 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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