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Raytheon-United Technologies Merger Gets Shareholder Nod

Zacks Equity Research

Raytheon Company RTN recently announced that its merger with United Technologies UTX has received approval from the companies’ shareholders. This reflects significant progress in the biggest-ever merger, announced in June 2019, in the history of the U.S. aerospace and defense space.

Following the approval, shares of Raytheon gained 0.6% on Oct 11.  

A Brief Note on the Merger

The merger is expected to create Raytheon Technologies Corporation, a premier conglomerate worth $121 billion, whose advanced technologies will address rapidly growing segments within aerospace and defense. The combined company’s portfolio will comprise aerospace electronics, communications and other equipment from United Technologies along with Raytheon’s military aircraft and missile equipment.

The deal, a tax-free one, is expected to close in the first half of 2020, subject to the satisfaction of customary closing conditions, including receipt of required regulatory approvals.

Why are Defense Bigwigs Resorting to Mergers?

Growing need for cost reduction, intensifying competition and increased control over production procedures have prompted defense industry bigwigs to engage in frequent mergers and acquisitions (M&As). Moreover, the current U.S. administration has been increasing the defense budget over the past couple of years. This must have encouraged defense biggies to strengthen their product portfolio through mergers.

Moreover, such consolidation of production by leading industry players usually improve economies of scale for the combined company. We believe these factors must have been driving forces behind the Raytheon-United Technologies merger.

Other M&As

In April 2018, General Dynamics GD completed the acquisition of IT service provider CSRA Inc for $9.7 billion. The deal made General Dynamics the largest provider of integrated information technology services to the federal government. CSRA was known for its cyber security and data-analytics business along with its information technology know-how.

In June, Northrop Grumman NOC completed the acquisition of Orbital ATK for $9.2 billion. The deal boosted Northrop Grumman’s missile portfolio substantially.  

With each of these combined companies performing well in the U.S. aerospace and defense space at present, we expect Raytheon Technologies to reflect similar excellence over the coming years.

Zacks Rank

Raytheon currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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General Dynamics Corporation (GD) : Free Stock Analysis Report
 
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
 
United Technologies Corporation (UTX) : Free Stock Analysis Report
 
Raytheon Company (RTN) : Free Stock Analysis Report
 
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