Washington – United Technologies Chairman Greg Hayes on Monday touted the company’s impeding marriage with Raytheon as a boon to its stockholders and customers – which includes the Pentagon – saying it was endorsed unanimously by the defense company’s board of directors.
But the proposed merger, which would create a defense giant with $74 billion in sales, may hit some bumps in the road on the way to completion.
President Donald Trump quickly questioned the impact on competition in the defense industry.
“When I hear they’re merging, does that take away more competition?” Trump said in an interview on CNBC. “It’s hard to negotiate when you have two companies and sometimes only one bid.”
The proposed Raytheon-UTC merger is part of a longtime trend of consolidation in the defense industry.
Trump said competition already has been diminished among defense contractors.
Last year, for instance, UTC completed its purchase of Rockwell Collins for $30 billion and the assumption of $7 billion in Rockwell debt.
“It becomes one big, fat beautiful company,” Trump said of the proposed tie-up between UTC and Raytheon. “But I have to negotiate — meaning the United States has to buy things, does that make it less competitive? It’s already non-competitive.”
UTC Chairman Gregory Hayes said he hoped to speak to the president about the proposed merger on Monday afternoon.
The Justice Department may require small divestitures where there’s overlap between United Technologies and Raytheon.
The deal may also be scrutinized by the Pentagon, and perhaps Congress. About half of the merged companies’ sales will be to the Defense Department.
“Overall, this entire deal merits aggressive and penetrating scrutiny by Congress – as well as the Pentagon, the Department of Justice, and other executive branch agencies,” said Sen. Richard Blumenthal, D-Conn. “That scrutiny must begin today.”
The headquarters of the new merged company, called Raytheon Technologies, would be in the greater Boston area. United Technologies, the parent company of Pratt & Whitney, is now headquartered in Farmington.
On a conference call Monday morning, Hayes promised “Raytheon Technologies will have a strong presence in Connecticut for years to come.”
Hayes also promised the merged company would keep a “corporate presence in existing locations.”
According to the deal, United Technologies shareholders will own approximately 57 percent and Raytheon shareholders will own approximately 43 percent of the combined company.
The merger is expected to close in the first half of 2020, following completion by United Technologies of the previously announced separation of its Otis and Carrier businesses, which Hayes said he hoped would be completed early next year.
Hayes called the deal “a stock merger of equals,” and said it would result in cost and revenue synergies that will save its customers money and result in bigger dividends for shareholders.
Hayes said the merger “had been on our radar screen for years” but could not become a reality until UTC divested itself of Otis and Carrier.
Both Hayes and Raytheon Chairman Tom Kennedy stressed that each of their companies had “complimentary technology,” with little duplication in research or production.
Raytheon’s strength is in its cyber capabilities, while UTC is focused on aircraft expertise, they said.
” It’s like a mirror, we don’t have overlap,” Hayes said.
Hayes promised “we’re not looking to consolidate a lot of factories,” or lay off many workers. But there is concern about the proposed tie-up in states with UTC facilities, including Connecticut and North Carolina.
In 2014, the state came to an agreement with UTC that allowed the company to access up to $400 million in research and development tax credits in return for a commitment to keep Pratt & Whitney headquartered in Connecticut for 15 years and Sikorsky – which UTC has sold to Lockheed Martin – headquartered in the state for five years.
Sen. Chris Murphy, D-Conn., said he intends to work closely with state government officials, the Justice Department and the Pentagon to “to ensure this merger does not violate the agreement UTC signed with the state.”
“I remain increasingly concerned about the rapid consolidating within defense and aerospace industry and the impact on competition,” Murphy said. “Our nation depends on a diverse and competitive industrial base and I intend to review this process closely in the months ahead.”