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.”
UTC Raytheon would not be one of the nation’s very largest defense firms. Both have a celebrated history. UTC made 1/2 the Allied aircraft engines during the War and has been the world’s premier jet engine manufacturer. Raytheon was there at the beginning developing missile technology playing a pivotal role in our nuclear sub missile technologies. These firms are world class in every respect and illustrate the best of American knowhow.
UTC’s move has long been anticipated within the defense industry. Some years ago its CFO said publicly in words that still ring true” “Everything costs more in CT”. So the exodus continues. Under former Gov. Malloy GE moved its headquarters out. Now its Gov. Lamont’s term with UTC. Who is next ? CT’s decade long stagnant economy seems destined to continue.
I can’t imagine why the merged company headquarters wouldn’t want to locate in business-friendly Connecticut. What a head scratcher.
Lamont got his budget and private industry and its employees, which pay for everything the government spends, speaks with action.
But, once the tolls are in place, UTC and GE will be begging to come back.
UTC’s headquarter exit ought be a wake up call to CT “tax and spend” Legislators. Similar to GE’s exit. UTC is CT’s largest employer with over 100,000 employers. Boston is booming while CT remains the nation’s only State with a decade long stagnant economy/employment level. We can be certain our national business community will again take notice of CT’s hostile “tax and spend” governance and invest elsewhere. The only real question here is how long will it take CT voters to appreciate that no State with a long stagnant economy ever rebooted itself with persistent “tax and spend” policies. Judging from the muted reaction of CT officials it may be a very long time. CT is becoming increasingly well recognized a a “failing State” within the business community. Just ask around. See the office vacancies in and around Stamford, our only “real City”. See the recent Bloomberg report on CT’s exodus – the most prominent in the nation.
As much as this does not bode well for CT and I too want to don’t love our ” tax and spend govt” this has nothing to do with that. If it did, they would move to fla, tx, nh. This has more to do with a generational shift back to major cities. People nowadays want to be by Boston or NYC or SF. Places like that. They all have high taxes and high cost but that is where people want to be. CT grew in the 60s, 70s, 80s cause everyone wanted the suburbs and get away from cities. That is the main driver for a lot of these moves.
With that said, our state gov’t needs to stop with its current ways. We can’t live this way of high taxes anymore to stay competitive. We have to offer real savings to upper class folks and stop panding to special interest. We have to offer low low taxes as that would be our advantage
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