20170521w_biz_rockwell (copy) (copy)

A crash-test dummy is strapped into an aircraft seating module on a crash sled for a test at an engineering development lab at UTC in Winston-Salem.

More than 1,500 Winston-Salem workers with United Technologies Corp. could have a new employer for the fourth time in just more than two years.

UTC confirmed Sunday that it and defense equipment giant Raytheon plan to merge into a combined corporation with UTC shareholders holding a 57% ownership stake.

The deal, which requires shareholder and regulatory approvals, is projected to close in the first half of 2020. It would be preceded by UTC completing the spin-off of its Otis and Carrier business units into separate publicly traded companies in the first half of 2020.

Most corporate deals center on three key elements: name of the company; where it will be based; and who will run it initially.

The combined company has a proposed name of Raytheon Technologies Corp. and would be based in Boston.

Gregory Hayes, UTC chairman and chief executive, would serve as chief executive. Thomas Kennedy, Raytheon’s chairman and chief executive, would be chairman for the first two years of the combined corporation, then replaced in that role by Hayes. UTC would control eight of the combined 15 board of directors seats.

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

The combined corporation would have $74 billion in 2019 per 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 and Lockheed at $39 billion.

Local impact?

There was no immediate comment on how the proposed megadeal would affect local Collins Aerospace employees. The companies’ executives will conduct an analysts’ conference call at 8 a.m. today.

The companies have little overlap when it comes to aerospace industry sales, which may bode well for lessening the impact on local employees.

The companies projected Monday in their analyst presentation having $1 billion in cost reductions, including $175 million from "facilities consolidation."

UTC has about 2,500 employees overall in North Carolina, and has announced plans to add 1,500 in the state as part of a 35,000 companywide employee expansion that could be put on hold with the Raytheon merger.

The local UTC workforce was employed by B/E Aerospace until April 2017 when their company was bought by Rockwell Collins for $8.6 billion.

Soon after Rockwell took over B/E, it eliminated at least 534 former B/E Aerospace jobs companywide, including at least 100 locally, and closed a former B/E plant in Arizona.

Just five months later in September 2017, UTC announced plans to buy Rockwell for $30 billion, including assuming $7 billion in Rockwell debt. That deal closed on Nov. 27, 2018, with local employees becoming part of UTC division Collins Aerospace.

However, Bowman Gray IV, a local independent stock broker, said there will be “duplicate positions that will have to be eliminated if allowed to proceed.”

“I thought I was shocked by how quickly the UTC-Rockwell merger came to be.”

Premier defense supplier

“The transaction will create a premier systems provider that will offer a complementary portfolio of platform-agnostic aerospace and defense technologies,” the companies said.

“It will offer expanded technology and research and development capabilities to deliver innovative and cost-effective solutions aligned with customer priorities and the national defense strategies of the U.S. and its allies and friends.”

Hayes had said he planned to retire five years after the completion of UTC’s $30 billion purchase of Rockwell Collins Inc., which occurred on Nov. 27.

“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” Hayes said.

“By joining forces, we will have unsurpassed technology and expanded research and development capabilities that will allow us to invest through business cycles and address our customers’ highest priorities.”

Kennedy said the combined corporation “will continue a legacy of innovation with an expanded aerospace and defense portfolio supported by the world’s most dedicated workforce.”

Challenging merger

The announcement was made about 4:30 p.m. Sunday, about 12 hours after U.S. and U.K. media reports surfaced about the megadeal, first by the Wall Street Journal quoting sources familiar with negotiations.

The companies said they expect to complete their merger in the first half of 2020.

That could be a challenging goal given not only shareholder approval is required, but also from several countries’ regulatory agencies, such as U.S. Justice Department and China’s State Administration for Market Regulation.

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

“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,” Gray said. “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. (Oct. 2, 2018) and European (May 4, 2018) 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.

As part of gaining U.S. regulatory approvals, the companies agreed to sell off two Rockwell properties to resolve the Justice Department’s antitrust concerns: its pneumatic ice protection systems business; and its trimmable horizontal stabilizer actuators.

Rockwell announced Sept. 18 it was selling its actuator business to Paris manufacturer Safran SA as part of gaining EU regulatory approval. The Rockwell-Safran deal closed Feb. 11.

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rcraver@wsjournal.com 336-727-7376 @rcraverWSJ

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