United Technologies To Merge With Raytheon In All-Stock Deal

United Technologies Corporation (NYSE:UTX) yesterday announced that it agreed to acquire Raytheon Company (NYSE:RTN) and merge it with its aerospace business. The all-stock merger of equals, as it has been termed by the participating companies, will create an aerospace and defense giant.

It is worth mentioning here that Raytheon’s products and services mainly cater to customers in defense and government markets. The company, founded in 1922, is headquartered in Waltham, MA.

Yesterday, United Technologies’ shares increased 0.4%, closing the trading session at $132.15.

Details of the Merger Deal

As noted, United Technologies’ board of directors approved the merger and it can be accomplished only after it separates from its Otis and Carrier businesses (as announced in November 2018). Post the separation, the company will be left with its Collins Aerospace Systems and Pratt & Whitney businesses.

Raytheon will be required to reorganize its four business operations into two, namely Integrated Defense & Missile Systems; and Intelligence, Space & Airborne Systems. At the time of the merger, each share of Raytheon can be exchanged for 2.3348 shares of the new company.

Raytheon Technologies — as the combined company will be known — will comprise the aforementioned future businesses of United Technologies and Raytheon. Of its total shareholding, roughly 57% will be with United Technologies while the rest will be with Raytheon. Its headquarters will be in the greater Boston metro area while the board of directors will have 8 members from United Technologies and 7 from Raytheon.

Pro forma sales of Raytheon Technologies are anticipated to be approximately $74 billion in 2019. Net debt will likely be $26 billion, of which $24 billion relates to United Technologies. Healthy free cash flow generation and solid balance sheet will be beneficial. Research and development spendings are likely to be $8 billion annually.

Apart from sophisticated technologies and products, the combined company intends on rewarding shareholders with $18-$20 billion in the initial 36 months. Annual run-rate cost synergies will likely be $1 billion in the first four years. Of this, annual savings of $500 million will be returned to shareholders.

With all pre-conditions fulfilled and the receipt of required regulatory approvals, the merger is likely to be completed in the first half of 2020.

United Technologies sees no change in its 2019-projections because of this merger deal.

Zacks Rank and Price Performance of United Technologies

The company, with approximately $114-billion market capitalization, currently carries a Zacks Rank #3 (Hold).

In the past three months, the company’s share price has improved 4.9% against 1.8% growth recorded by the industry.

In the past 60 days, the Zacks Consensus Estimate for earnings for the company has increased 0.6% to $7.97 for 2019 and remained unchanged at $8.70 for 2020. Further, these estimates represent year-over-year growth of 4.7% for 2019 and 9.2% for 2020.

United Technologies Corporation Price and Consensus