The American Multi-national Aircraft company United Technologies[UTC] is striking a deal with Raytheon, a weapon manufacturing company. The deal has come into the picture after UTC executives chose to exit the escalator and air conditioning business.
Following the merger, the company will be worth $166 Billion and will be the second largest aerospace and defense manufacturing company just behind Boeing Co. The combined company will make everything from the seats, engines, missile launchers, and space suits for astronauts.
The deal will help to invest more of the money on technologies such as cybersecurity and space systems. After the deal, the company would be named as Raytheon Technologies Corp. While UTC will hold 57% share of the companies and will appoint eight of the 15 directors on the board. The current CEO of the UTC, Greg Hayes will serve as the CEO of the combined company while Raytheon CEO Tom Kennedy as executive chairman for two years.
Executives of the company said that the collaboration will save out $1 Billion annual costs. The new company will have $26 Billion in debt from which $24 Billion comes from UTC. Raytheon will receive 2.3348 shares for every share they own in the company. “There is some truth to the idea that bigger is better,” Jefferies analyst Sheila Kahyaoglu wrote in a note to clients Sunday. “With common customers there is some leverage to size and the supply chain.”
“What’s even more important is the underlying technology both companies are developing,” Mr. Kennedy said in an interview. Raytheon first approached Mr. Hayes about a deal last year, he said.
The merger will be one of the biggest mergers in the year 2019. Jefferies analyst Sheila Kahyaoglu said that the common customers between the two will leverage them in the supply chain. Last year, the combined revenue from the Pentagon was about $26 Billion.
“The potential for defense budgets to flatten in the next couple of years could add a sense of urgency” for companies to reposition themselves, Ms. Kahyaoglu at Jefferies said.