The deal is expected to close in the first half of 2020, following the previously announced spin-off of United Technologies' Carrier air conditioning and Otis elevator businesses. While billed as a merger of equals, current United Technologies shareholders will own most of the company after the transaction, which has an equity value of $86 billion, according to data compiled by Bloomberg. The combined company, which will be named Raytheon Technologies Corporation, will offer expanded technology and R&D capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defense strategies of the US and its allies and friends.
Both companies' shares stand to benefit because of the potential synergies, which could free up capital that may be deployed, Jefferies wrote in a note.
United Technologies and Raytheon have market capitalizations of $114 billion and $52 billion, respectively. Each advanced more than 20% this year through June 7, in line with a Standard & Poor's index of aerospace and defense manufacturers.
Waltham-based Raytheon was founded in 1922 and makes missiles - including the Patriot system - and cybersecurity tools.
"Today is an exciting and transformational day for our companies, and one that brings with it tremendous opportunity for our future success", said Tom Kennedy, Raytheon Chairman and CEO.
UTX and RTN have followed in the footstep of Harris (HRS) and L3 Technologies (LLL), which previous year announced an all-stock merger. The new company will be called Raytheon Technologies.
United Technologies and Raytheon appear to have little overlap in their businesses, an argument the companies could make once USA antitrust regulators start scrutinizing their merger. The company's board will have eight directors from United Technologies and seven from Raytheon.
The deal is expected to close in the first half of 2020.
The deal with Raytheon could put pressure on General Electric Co., which also competes with United Technologies for commercial aerospace clients, to seek scale. Along with last year's $23 billion acquisition of aircraft-parts supplier Rockwell Collins, the Raytheon deal remakes United Technologies as an aerospace giant with products including not only jet engines and missiles but other items like cockpit electronics and radars. Another crucial customer is the U.S. Department of Defense. Following the merger completion, the combined company intends to spend more than $8 billion in research and development projects. There is no change to the 2019 financial outlook for either company. The merger will not include Carrier and Otis, now units of United Technologies but in the process of being spun-off by the first half of 2020.
The merger of Raytheon, a leading defense company, and United Technologies, a leading aerospace company, comprised of Collins Aerospace and Pratt & Whitney, will offer a complementary portfolio of platform-agnostic aerospace and defense technologies.