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Raytheon, UTC Announce All-Stock Merger; Thomas Kennedy, Greg Hayes Quoted

Thomas Kennedy, chairman and CEO of Raytheon

Raytheon (NYSE: RTN) and United Technologies Corp. (NYSE: UTX) have agreed to merge in an all-stock deal that will establish a platform-agnostic technology provider within aerospace and defense segments.

The combined company will operate as Raytheon Technologies and be headquartered in the greater Boston metro area upon the deal’s completion, which is expected in the first half of 2020, the firms said in a joint statement published Sunday.

“Raytheon Technologies will continue a legacy of innovation with an expanded aerospace and defense portfolio supported by the world’s most dedicated workforce,” said Thomas Kennedy, chairman and CEO of Raytheon and a 2019 Wash100 winner.

Greg Hayes, UTC chairman and CEO, said the combined firm will have expanded research-and-development capabilities to invest through business cycles and meet clients’ priorities and is expected to deliver revenue and cost synergies through the merger of portfolios.

Greg Hayes, UTC chairman and CEO

Kennedy will serve as executive chairman of Raytheon Technologies. Hayes will serve as CEO and then assume the additional role of chairman two years after the transaction’s completion.

Raytheon Technologies will have approximately $8B in annual research-and-development funds, over 60K engineers and seven tech centers of excellence committed to developing tech platforms across several areas such as artificial intelligence and analytics; intelligence, surveillance and reconnaissance; directed energy weapons; and hypersonics and future missile systems.

The combined firm’s board will be composed of seven directors from Raytheon and eight from UTC.

Under the planned merger, four Raytheon businesses will consolidate into two segments – integrated defense and missile system and intelligence, space and airborne systems – and join Pratt & Whitney and Collins Aerospace to form the new entity’s four businesses.

The boards of both companies unanimously cleared the transaction, which is still subject to approvals by shareholders and regulators as well as UTC’s completion of the separation of its Carrier and Otis businesses.

UTC will own approximately 57 percent of the combined company. Raytheon shareholders will keep the remaining equity stake and will get 2.3348 shares in the combined firm for each share they own.

The combination is expected to be tax-free and is projected to have approximately $74B in 2019 pro-forma sales, return $18B to 20B of capital to shareholders in the first three years of the merger’s completion and generate over $1B in gross annual run-rate cost synergies by year four.

Citigroup Global Markets and Shearman & Sterling LLP respectively serve as financial adviser and legal counsel to Raytheon. RBC Capital Markets offered a fairness opinion to the defense contractor.

Morgan Stanley & Co. (NYSE: MS), Evercore (NYSE: EVR) and Goldman Sachs & Co. advise UTC on the deal’s financial aspects, while Wachtell, Lipton, Rosen & Katz serves as the firm’s legal adviser.

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