The decision by United Technologies Corp. to spin off two core business segments last fall created a ripple effect that has led to a proposed megadeal with defense industry giant Raytheon.

UTC confirmed Sunday that the two corporations plan to merge, with UTC shareholders holding a 57% ownership stake. The deal is valued at $120 billion.

The combined company has a proposed name of Raytheon Technologies Corp. and would be based in the Boston area with the New York Stock Exchange ticket symbol of “RTX.”

The deal, which requires shareholder and regulatory approvals, is projected to close in the first half of 2020. The deal break-up fee would be $2.36 billion to Raytheon and $1.78 billion to UTC.

It would be preceded in closing by UTC completing the spin-off of its Otis and Carrier business units into separate publicly traded companies.

Post spin-off, UTC would be focused on aircraft engines and aerospace systems for commercial and defense customers, while Raytheon specializes in defense electronics and mission systems.

There are about 1,500 Winston-Salem employees with UTC’s Collins Aerospace Systems segment, and an additional 1,000 UTC employees in North Carolina.

UTC’s board of directors and executive management, led by chairman and chief executive Gregory Hayes, were under increasing pressure for much of 2018 from activist shareholders pushing for the two spin-offs.

Thomas Kennedy, Raytheon’s chairman and chief executive, told analysts Monday he placed a call to Hayes to discuss merger possibilities once the spin-offs became realistic.

Kennedy had been considering a merger between the corporations “because it would be one that would be platform agnostic with existing franchises and with possibility of creating new franchises through shared technologies.”

UTC announced the spin-off plans Nov. 27 as it confirmed the closing of its $30 billion purchase of Rockwell Collins Inc. The UTC-Raytheon merger talks began in earnest in January.

“It’s almost like looking at Raytheon in the mirror. We’re complementary, but without overlap relative to fundamentals of the businesses.

“We knew it could be a win-win (for companies, employees, shareholders) if we could figure out a way to do it,” Kennedy said.

Hayes said that when Kennedy called, their talks pushed up a plan “that had been on our radar screen forever ... even before Goodrich and Rockwell Collins.”

Little operational overlap

The merger would combine UTC’s Collins Aerospace and Pratt & Whitney businesses with Raytheon’s Intelligence, Space & Airborne Systems and Integrated Defense & Missile Systems.

The combined corporation would have $77 billion in 2019 pro forma sales.

Combined, UTC and Raytheon would have had $24.3 billion in U.S. defense spending in 2018, trailing second-place Boeing at $27.4 billion.

The companies said UTC would add expertise to Raytheon’s defense technology, while Raytheon’s cyber threat operations could provide enhanced protection to UTC commercial aircraft products.

For example, Raytheon said it would add to UTC’s commercial aircraft products and services “cyber solutions for airlines and original equipment manufacturer offering secure connectivity, and next-generation national airspace system with improved capacity, efficiency and safety, and application of artificial-intelligence-based data analytics and machine learning techniques to optimize the manufacturing, maintenance and fleet operation of commercial aircraft.”

Hayes told analysts he referred to the megadeal as “integrational-lite” because there is little operational overlap.

Hayes would serve as CEO of the company for two years and take over as chairman with the departure of Kennedy.

The companies project $1 billion in cost savings: $350 million from supply chain and procurement; $325 million from corporate and segment consolidation; $175 million from facilities consolidation; and $150 million from information technology and other selling, general and administrative (SG&A) expenses.

Hayes viewed combining the two corporate headquarters as an opportunity to pick the best headquarters staff, and that the combined company would maintain “a significant presence” at UTC’s base in Farmington, Conn.

“This is really not going to affect our businesses or our operations really anywhere,” Hayes said.

The companies project providing between $18 billion and $20 billion in shareholders returns within three years through share repurchases and dividend payments.

Divesting required?

Closing the megadeal in the first-half of 2020 could be a challenging goal given that approval is required not only from shareholders, but also from several countries’ regulatory agencies, such as the U.S. Justice Department and China’s State Administration for Market Regulation.

Also likely to factor into regulatory negotiations is the trade war between China and the Trump administration.

For example, President Donald Trump said on cable business channel CNBC that he didn’t want a UTC-Raytheon deal to reduce the Pentagon’s leverage in future procurement contracts.

“I want to see that we don’t hurt our competition,” Trump said. “ I hope (the deal) can happen.”

“But I don’t want to see where we have one less person that can compete for an order. I don’t want to see that. It’s no good.”

Bowman Gray IV, a local stock broker, said that “while this proposed deal may have potential shareholder benefits, my intuition tells me that it will either be blocked by the U.S. Justice Department, or if allowed to move forward, they will be forced to spin off or sell several divisions.”

The UTC-Rockwell Collins megadeal faced a nearly two-month delay in approval from the Chinese government after the deal had gotten U.S. and European approvals.

That deal, which was supposed to have closed by July 1, 2018, wound up being completed on Nov. 27, 2018 — just three days after Chinese regulatory approval was secured.

In each case, UTC was required to divest certain businesses before regulatory approval was given.

Hayes said the corporations are confident in gaining U.S. regulatory approvals because of the cost savings and technological advances the U.S. Defense Department would receive.

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