June 10, 2019
(Reuters) – Stock market investors gave their seal of approval to the $121 billion merger of defense contractor Raytheon Co and United Technologies Corp on Monday, pushing shares of both companies higher after the surprise weekend announcement.
The deal announced on Sunday will create the world’s second largest aero-and-defense company by sales behind Boeing Co and allow Raytheon to expand into commercial aviation while reducing United Technologies’ dependence on aerospace.
Several Wall Street analysts sent notes outlining the positives for both companies and, with no premium in the deal for either company’s shares, United Tech and Raytheon’s stock prices jumped respectively by 4% and 8.3% in premarket trade.
“The RTN-UTX merger is a surprise but we see real rationales on both sides in scale, diversification in the face of cyclical uncertainty, and financial benefits,” J.P. Morgan analyst Seth Seifman said in a note.
“UTX also gets to de-lever with Raytheon’s balance sheet and Raytheon holders get compensated in return.”
The two companies have some common customers, but have argued that their business overlap is limited as they face the prospect of U.S. antitrust regulators scrutiny of the merger.
Under the deal, Raytheon shareholders will receive 2.3348 shares in the new company Raytheon Technologies for each Raytheon share and the new company will assume about $26 billion in net debt.
“While the synergies may be less apparent than in recent deals there is some truth to the idea that bigger is better. With common customers there is leverage to size and the supply chain,” Jefferies analyst Sheila Kahyaoglu said in a note.
The deal is expected to close in the first half of 2020 following the spin-outs of United Technologies’ Otis and Carrier businesses.
(Reporting by Rachit Vats in Bengaluru; Editing by Patrick Graham)