WASHINGTON — Raytheon and United Technologies are reportedly close to a merger, with the resulting company likely to emerge as the second largest defense contractor in the world.
The merger discussion was first reported Saturday by the Wall Street Journal and confirmed by CNBC. Per the Journal, a deal could be announced in this “coming days assuming talks don’t fall apart at the last minute.”
The deal would be structured as a merger of equals and would be timed with United’s already announced plans to spin off its Otis Elevator and Carrier commercial systems into new companies. UTC Chairman and CEO Greg Hayes is expected to lead the company, per the Journal, with Raytheon head Tom Kennedy serving as chairman.
If the deal goes through in early 2020 as expected, the resulting company will likely rank as the world’s second largest defense contractor, behind only Lockheed Martin.
Raytheon already ranked number two on the most recent Defense News Top 100 list, with $23.5 billion in defense revenues, 93 percent of its overall revenue total; UTC has $7.83 billion in defense revenues, a mere 13 percent of its overall figures.
However, that UTC number came before its acquisition of Rockwell Collins and its $2.28 billion in defense revenues, which will naturally increase United’s overall number.
The move comes after 18 months of major defense consolidation. In addition to UTC’s move on Rockwell, there was the General Dynamics acquisition of CSRA, Northrop Grumman’s acquisition of Orbital ATK, and L3 and Harris announcing in Oct. 2018 that they would combine to form what at the time appeared to be the seventh largest global defense firm.
Major defense industry moves must be approved by the Pentagon, in order to ensure competition remains in the marketplace. Both companies are active in the components marketplace. However, acquisition head Ellen Lord has expressed an openness to mergers in the past, and may not be inclined to try and block this move.
“I think we have worked, actually, to make sure that we are communicating effectively within DoD about any potential mergers and acquisitions. We’ve started a new process where, as soon as we know about them, we go out a data call to all components, all services,” Lord said in late 2018. “We take a look at that, and if there are any concerns, we work closely with the FTC or DoJ, whoever might have them. And if there’s a concern, then we have consent to please and deal with that.”
“Basically, we like market forces to play out. It’s by exception, that we would intervene,” she said then.
Aaron Mehta was deputy editor and senior Pentagon correspondent for Defense News, covering policy, strategy and acquisition at the highest levels of the Defense Department and its international partners.
