The merger between Raytheon and United Technologies to create a massive aerospace and defense company in a sector that is already rapidly consolidating, is a deal that Ron Epstein, a lead aerospace defense analyst at Bank of America Securities in New York, said makes for a defensive portfolio.
The combined company, which will count among its portfolio of weaponry the F-35 fighter jet engines, Patriot and Tomahawk missile systems, in addition to space suits and intelligence technology as well as Pratt & Whitney engines used in both commercial and military aircraft, anticipates annual revenue of $74 billion if approved.
That means it still trails Boeing Co. in heft, but the deal may give the soon to be renamed Raytheon Technologies Corp. leverage with suppliers and contractors over other heavyweights in the industry like Lockheed Martin Corp. and Northrop Grumman Corp.
Costs for the company could eventually be trimmed by $1 billion each year as it strips away duplicate functions.
The combined company would be valued at well over $100 billion even after United Technologies completes the planned spinoff of a good chunk of its commercial, industrial wing.
The deal is expected to close in the first half of 2020, after those assets are shed by United Technologies.
The companies will push to develop new technologies more quickly with combined R&D spending of $8 billion annually and more than 60,000 engineers. Raytheon Technologies will focus on hypersonics—vehicles or weapons, which can fly five times faster than the speed of sound—as well as intelligence and surveillance systems, artificial intelligence for commercial aviation, and cybersecurity for connected planes.
The deal would push United Technologies further from the cyclical nature of its commercial businesses, and more deeply into the defense sector.
Raytheon shareholders will receive 2.33 shares in the new company for each Raytheon share. Once the merger is complete, United Technologies shareholders will own approximately 57 percent of the company; Raytheon shareholders will own the rest.
Shares of Raytheon rose about 2 percent early on Monday, a day after the deal was announced. United Technologies fell 2 percent.