Massachusetts: United Technologies Corp is nearing a deal to merge its aerospace business with US defence contractor Raytheon Co and form a new company worth well over $100 billion, a person familiar with the matter said on Saturday.
United Technologies and Raytheon are seeking to pool resources through what would be the biggest merger in the aerospace and defence sectors.
United Technologies provides primarily commercial plane makers with equipment such as electronics and communications equipment, whereas Raytheon is a vendor mainly to the US government for equipment in military aircraft and missiles.
The deal would be structured as an all-stock merger of equals because United Technologies would separately spin off its Carrier air conditioning business and Otis elevator division, as it has previously announced it would do, the source said.
If the negotiations between United Technologies and Raytheon are completed successfully, a deal could be announced as early as Monday, the source added, asking not to be identified because the matter is confidential.
United Technologies has a market capitalisation of $114 billion, but without Carrier and Otis, its value could be less than $60 billion, bringing it closer to Raytheon’s market capitalisation of $52 billion.
The Wall Street Journal first reported on the potential deal, stating that United Technologies Chief Executive Greg Hayes is expected to lead the newly created company, while Raytheon CEO Thomas Kennedy would be chairman.
Raytheon, maker of the Tomahawk and the Patriot missile systems, and other US military contractors are expected to benefit from strong global demand for fighter jets and munitions as well as higher US defence spending in fiscal 2020, a lot of it driven by US President Donald Trump’s administration.
However, Pentagon spending is projected to slow down after an initial boost under 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.
Conversely, United Technologies could benefit from reducing its exposure to commercial aerospace clients amid concerns over the rise of protectionism in international trade. 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 that the industry is expected to post a $28 billion profit in 2019, down from a December forecast of $35.5 billion.
United Technologies has 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 $23 billion acquisition of Rockwell Collins, which was completed in 2018, and the rival company Pratt & Whitney engines business. — Reuters
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