The Merger that Worries Trump

The announced merger between United Technologies and Raytheon captured the of specialized media during the the last few days. If realized, they would create a colossus in the Aerospace and Defense (A & D) sector with a market value of some 166,000 million dollars, according to CNN.

United Technologies Corporation (UTC) is one of the leading suppliers of the two leaders in commercial aircraft manufacturing, Airbus and Boeing, while Raytheon supplies the United States government with combat aircraft and missiles.

This merger by equals, in which the shareholders of UTC would obtain 57% of the resulting company, comes after the previous purchase of Rockwell Collins last November of 2018, and the announcement of the separation of its different business´ lines in Three independent companies:

  • Otis, leading manufacturer of elevators and escalators.
  • Carrier (Climate, Controls & Security), global provider of HVAC, refrigeration systems etc …
  • United Technologies, composed of Collins Aerospace Systems and Pratt & Whitney.

The merger could be the definitive move for Raytheon Technologies (name that the company will receive after the merger) to consolidate as a giant in the A & D sector.

This operation will be the bigest in this sector´s history, but it is by any means the first. “This case reminds us a lot of Harris and L3,” analyst Sheila Kahyaoglu told CNBC, referring to the merger between L3 Technologies and Harris Corporation, which has received green light by the administration and the company, one of the greatest mergers in the defense sector. Often in markets with these characteristics, companies see mergers or acquisitions as the best option to grow.

The merger of Raytheon and UTC is expected to achieve cost savings of about $ 1 billion, but its greatest impact could come from the substantial reduction in the bargaining power of companies such as Airbus, Boeing or even the Pentagon. Although experts say that the merger should not be affected by the “antitrust” laws of the American government, because the activities of both companies do not overlap, they are complementary, President Trump has already shown his dissatisfaction with the merger, since it worries that it could affect the competition in the sector.

The strategy followed by UTC and Raytheon could lead to new mergers or acquisitions in the market to try to stand up to this new colossus of the sector.