(Reuters) - Shares of defense contractor Raytheon (NYSE:RTN) Co and United Technologies Corp (NYSE:UTX) pared gains on Monday after U.S. President Donald Trump said he was a "little concerned" about their $121 billion merger to create a new aero-defense company.
Trump said the merger would harm competition and make it more difficult for the U.S. government to negotiate defense contracts.
"I want to see that we don't hurt our competition," he said in an interview with CNBC.
The surprise deal, announced on Sunday, will create the world's second largest aero-and-defense company by sales behind Boeing (NYSE:BA) Co and allow Raytheon to expand into commercial aviation while reducing United Technologies' dependence on aerospace.
"The proposed UTX-RTN merger looks like a good, but not transformative, fit with solid financials and modest regulatory risk. Investors should like the deal for RTN and may be neutral to slightly positive for UTX," Cowen analyst Cai von Rumohr said in a note.
The two companies have some common customers, but have argued that their business overlap is limited as they face the prospect of U.S. antitrust regulators scrutiny.
Dismissing concerns over the antitrust scrutiny, United Technologies said it expects to secure approvals by early 2020.
"The RTN-UTX merger is a surprise but we see real rationales on both sides in scale, diversification in the face of cyclical uncertainty, and financial benefits," J.P. Morgan analyst Seth Seifman said in a note.
"UTX also gets to de-lever with Raytheon's balance sheet and Raytheon holders get compensated in return."
Under the deal, Raytheon shareholders will receive 2.3348 shares in the new company Raytheon Technologies for each Raytheon share and the new company will assume about $26 billion in net debt.
United Tech's shares were down about 2% at $129.40, while Raytheon's stock was up 1.7% at $189.2 in morning trade.