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United Technologies, Raytheon lead aerospace’s biggest ever merger

United Technologies, Raytheon

Deal transforms aviation landscape forming a new conglomerate comprising commercial aviation and defence procurement

United Technologies will merge its aerospace business with US defense contractor and industrial company Raytheon in an effort to establish a new venture in a deal worth $121 billion, media reports said. United Technologies and Raytheon merger would be the industry’s biggest deal so far.

The new venture will be called Raytheon Technologies. United Technologies and Raytheon share a few common customers. The deal would transform the aviation landscape through the formation of a new conglomerate which comprises commercial aviation and defence procurement.

The deal is expected to close in the first half of 2020. Both companies said that Raytheon Technologies is expected to generate between $18 billion and $20 billion of capital to shareholders in the first three years after the deal’s completion. It will also have nearly $26 billion in net debt.

Under the terms of the agreement, Raytheon shareholders will receive 2.3348 shares in Raytheon Technologies against each Raytheon share. Likewise, United Technologies shareholders will own approximately 57 percent of Raytheon Technologies. Raytheon shareholders will own the remaining stake, and Raytheon CEO Tom Kennedy will be appointed executive chairman.

Overall, the merger is expected to incur more than $1 billion in cost synergies by the end of the fourth year, the companies said.  United Technologies and Raytheon have market capitalisations of $114 billion and $52 billion, respectively.

The deal has been structured so that shareholders of either companies will not receive a premium.

Morgan Stanley, Evercore, and Goldman Sachs were financial advisers to United Technologies, while Wachtell, Lipton, Rosen & Katz were its legal advisers. That said, Citigroup was the financial adviser to Raytheon, Shearman & Sterling was its legal advisor.

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