Raytheon ‘not just seeking size’ with UTC deal
US defence group’s finance chief stands by $120bn merger plan with UTC aerospace arm
Raytheon, the US defence group, has defended its proposed merger with the aerospace arm of United Technologies, insisting it is not pursuing size for the sake of it.
“This is not about just being bigger,” Toby O’Brien, Raytheon chief financial officer, told the Financial Times in an interview.
The deal to create a sprawling $120bn aerospace and defence group was unveiled two weeks ago but has come under fire from investors who have questioned the logic of the combination. There is just a 1 per cent overlap between the two companies in terms of revenues.
Activist investor Bill Ackman, whose hedge fund Pershing Square has a stake of more than $700m in UTC, came out against the deal arguing that the tie-up will lower the quality of its aerospace business.
US president Donald Trump has also waded into the merger, raising concerns that it could be bad for competition in a sector that is dominated by a small number of large participants.
Shares in the two companies initially fell as the market digested the news but have since recovered. Investors, said Mr O’Brien, were taken off-guard.
“The biggest thing for all investors, regardless of their initial reaction, this surprised them . . . [so] at the minimum I would have a lot of questions,” he said at the Paris air show last week.
“The sentiment today is much more positive than perhaps what the initial reaction was,” he added, but conceded that “you will always have outliers”.
Mr O’Brien declined to comment on Mr Trump’s remarks but people familiar with the situation confirmed that Greg Hayes, UTC’s chief executive, and Tom Kennedy, his counterpart at Raytheon, have since met the president in the Oval Office.
“It was a positive meeting,” said one person, adding that the three discussed the impact of the deal on US manufacturing.
The merger will bring together Raytheon’s military expertise and flagship products such as its Patriot and Tomahawk missiles with UTC’s Collins Aerospace, a maker of cockpit avionics, and the aero-engine group Pratt & Whitney.
While being billed as a “merger of equals”, UTC shareholders would own approximately 57 per cent of the combined group and their Raytheon counterparts 43 per cent.
Mr O’Brien insisted that it was not a reverse takeover of Raytheon but a “nil premium merger”, adding that the relative valuations as well as the governance structure around the deal were “fair”.
The combined group, he said, would be “more resilient” and be able to operate through all business cycles while returning between $18bn-$20bn to shareholders in the first three years of the merger.
The companies have argued that the lack of overlap is a good thing and should help secure approval from regulators.
“This is all about the technologies,” said Mr O’Brien, adding that the new company would be able to capture “a bigger part” of government programmes, as well as “at a higher probability”.