The largest ever merge in the aerospace industry worth $121 billion could be created by the merger of the aerospace business of United Technologies Corp after it agreed to merge that business unit with that of US contractor Raytheon Co.
The competitive landscape of the aerospace industry would be altered if the deal goes through because the resultant entity would cover both commercial aviation and defence procurement. While electronics, communications and other equipment is primarily provided to the commercial plane makers by United Technologies, military aircraft and missile equipment is primarily provided to the United States government by Raytheon.
Despite the two companies possessing some common clients in the aerospace industry, there is limited business overlap of the companies. This is the argument that the two companies are likely to present to US antitrust regulators after the deal is put up for their scrutiny.
However this argument by the companies before antitrust authorities is likely be partially offset by the fact that Boeing Co and Airbus SE, the two major commercial aircraft manufacturers, as well as the Pentagon, are used to extracting large concessions and rebates from their suppliers and hence they would not prefer reduction of competition among these two suppliers.
In 2016, while refusing an acquisition offer from Honeywell International Inc, the then United Technologies chief executive Greg Hayes had argued in favor of the decision saying that it was most likely that a merger of the companies would never be accepted by Boeing and Airbus as they would not want to have a supplier with the capacity to “build the plane from tip to tail.”
Its Carrier air conditioning and Otis elevator businesses is set to be separated by United Technologies, the company has said which would allow the company to completely focus on its aerospace business by its acquisition of Rockwell Collins for $23 billion, which was completed in 2018, as well as on its Pratt & Whitney engines business.
Because the airplane parts maker Rockwell Collins had a significant business in the Chinese market, therefore the acquisition was closely scrutinized by the Chinese authorities. This delayed the closure of the deal till November of last year against a pre set date of the third quarter of last year.
According to the latest deal announced, 2.3348 shares in the combined company for each Raytheon share would be available to the shareholders of Raytheon. The companies are expecting to achieve cost synergies of more than $1 billion because of the merger.
About 57 per cent of the new combined business, which is being called Raytheon Technologies Corporation, would be owned by shareholders of United Technologies and the new entity would be headed by Hayes. The remaining stake in the new company would be owned by Raytheon shareholders while the current Raytheon CEO Tom Kennedy would become the executive chairman of the new entity. According to reports, negotiations for the deal have been ongoing for months before deal was struck.
(Adapted from MoneyControl.com)