Donald Trump questions United Technologies-Raytheon merger
US president queries whether deal would decrease competition in defence sector
US President Donald Trump has waded into the planned merger of United Technologies and Raytheon, suggesting the deal that would create an aerospace and defence giant could be bad for competition in the sector.
Under the deal, which was agreed on Sunday, UTC is set to merge its aerospace business with Raytheon to form a $120bn powerhouse and the second-largest defence contractor by revenue.
But Mr Trump said on Monday it could decrease competition in a sector in which a small number of companies command strong pricing power.
“When I hear United and I hear Raytheon . . . when I hear they are merging, does that take away more competition?” Mr Trump asked in an interview on CNBC.
The comments by Mr Trump echo his previous intervention on AT&T’s takeover of Time Warner and could prepare the ground for Raytheon and United to claim improper political interference if antitrust enforcers attempt to block the deal.
In the case of AT&T-Time Warner, the spectre of the president’s vow to block the deal on the campaign trail hung over Makan Delrahim, the antitrust chief of the Department of Justice, when he sued to block the transaction.
A federal judge cleared the deal in a decision affirmed on appeal. Mr Delrahim has always denied any political considerations played a part in his move to block the takeover.
Mr Trump on Monday said a merged Raytheon-United Technologies would be “one big, fat, beautiful company” that could result in higher costs for the US military.
“I have to negotiate — meaning the United States has to buy things — and does that make it less competitive? Because it’s already non-competitive,” he said.
The president added that the US already spent far more than “other major countries” such as China and Russia on its defence budget, insisting “part of it is that we have no competition”.
Earlier in the day, both chief executives of the merging companies had told analysts on a conference call that the deal will not harm competition or raise regulatory hurdles.
Mr Trump has gone further than past presidents in his willingness to entangle himself in corporate matters and to openly criticise specific companies by name on a range of issues from trade to free speech and antitrust.
He has taken aim at Google and other Silicon Valley firms for allegedly discriminating against conservatives, which the firms have denied, adding weight to the political pressure on the justice department and the Federal Trade Commission to put technology giants under tougher scrutiny.
The agencies have recently taken steps towards launching antitrust probes of Google, Facebook, Apple and Amazon.
The Raytheon-United Technologies deal will be reviewed on antitrust grounds by either the DoJ or the FTC, which share responsibility for assessing whether mergers are anti-competitive. While both are led by appointees of Mr Trump, the FTC is an independent agency designed to have greater insulation from the administration.
Greg Hayes, UTC chairman and chief executive, said he didn’t see “big push back” from the US department of defence, which he predicted would reap “huge benefits” from the deal.
“From a regulatory standpoint, the beauty of this deal is there's very little overlap. You're talking on the basis of $75bn or $80bn of sales, less than 1 per cent of our sales probably have overlap. This is truly a complementary deal from a technology standpoint or from product standpoint,” he told analysts.
“Less than 10 jurisdictions have to approve this,” he added, noting that the deal will not require the approval of the Chinese government to proceed. UTC’s acquisition of avionics specialist Rockwell Collins, announced in September 2017, did not close until November 2018 after Chinese authorities delayed a decision as trade tensions with the US grew.
“We truly believe that we're going to get this done relatively quickly. Our goal right now is to have a regulatory approval by the first quarter of next year,” he said.
Richard Aboulafia, aerospace and defence analyst at Teal group, predicts that the deal will provoke little regulatory scrutiny. “Since there's no overlap, I don't know what the grounds would be for DOD objection. And Trump might signal concern for his populist base, but given his strong pro-business approach, it's really just smoke,” he said.
UTC shares fell 2 per cent after the New York open, which coincided with the release of Mr Trump’s comments. Raytheon shares were up 2 per cent after the open.