UTC TO MERGE, MOVE HQ
$166B combination of UTC, Raytheon ‘will define the future of aerospace and defense,’ CEO says Connecticut-based aviation conglomerate will set up shop in Boston, echoing G.E.’s exit in 2017
In a stunning announcement Sunday, United Technologies Corp said it reached a deal to merge with defense contractor Raytheon Co. and plans to move the company headquarters to the Boston area.
While the departure would remove another corporate headquarters from Connecticut, the merger is not expected to significantly affect employment here, where the company has 19,000 employees and manufacturing facilities in East Hartford and Middletown. Roughly 100 jobs will move from Connecticut to the new headquarters.
“The combination of United Technologies and Raytheon will define the future of aerospace and defense,” said Greg Hayes, chief executive officer of UTC. The combined companies will be renamed Raytheon Technologies Corporation.
In the massive aviation-defense merger of two companies with a combined value of $166 billion, the stock-swap arrangement calls for UTCshareowners to own about 57 percent of the new company and shareowners of Raytheon, based in Waltham, Mass., will own 43 percent. UTC will have eight of the15 board seats with the remainder held by Raytheon.
The deal brings together a major aerospace company — UTC bulked up its aviation business last year with its $30 billion acquisition of Rockwell Collins Inc. — and a sizable defense contractor, allowing each access into the other’s markets. The combined company will have approximately $74 billion in pro forma 2019 sales and will be the second-biggest aviation-defense company after Boeing Co.
“UTC and its subsidiaries, including Pratt & Whitney, Otis Elevator, and Collins Aerospace, continue to be an important part of
Connecticut’s fabric,” said Gov. Ned Lamont.
“I’ve spoken directly with Greg Hayes and made it clear that Connecticut will always be open should things change, as they often do. This serves as reminder that we live in an increasingly competitive economy, domestically and internationally. As such, it’s critical we invest in education, workforce development, and our transportation infrastructure to stay competitive,” Lamont said.
“Our economic development team, led by Jim Smith, Indra Nooyi, and David Lehman, is already aggressively shifting their business development strategy, including redesigning the Connecticut Economic Resource Center to match the speed and flexibility necessary to compete and succeed in the 21st century economy and job market. We will continue to market our state as a fantastic place to live, work, and locate a business.”
The acquisition intensifies the consolidation in the aerospace and defense industry as plane manufacturers press suppliers for better terms and the Pentagon puts more pressure on contractors to cut costs.
The deal “raises very sweeping and serious questions and doubts about its impact on the Connecticut workforce and economy as well as our national security and defense,” said U.S. Sen. Richard Blumenthal, a member of the Senate Armed Services Committee.
He said he is “troubled by the possible impact on cost and competition of defense product, which may significantly affect American taxpayers.” The merger merits “aggressive and penetrating scrutiny by Congress,” Blumenthal said.
“A range of significant factors, including the company’s headquarters move to Massachusetts, make this proposed merger potentially unwelcome,” he said.
U.S. Rep. John B. Larson, whose district includes both the UTC headquarters and Pratt & Whitney in East Hartford, said he was “assured by UTC that their manufacturing base in Connecticut will remain strong.”
The deal is expected to close in the first half of 2020 after UTC spins off its Otis elevator and Carrier heating and cooling businesses.
Hayes will be CEO of Raytheon Technologies and Tom Kennedy, CEO of Raytheon Co., will be chairman of the newly combined conglomerate. Two years after the deal closes, Hayes will become chairman and CEO.
The two companies said the deal will result in a balanced and diversified aerospace and defense portfolio.
The departure of UTC from Connecticut follows by less than three years the exit of General Electric Co. to Boston from Fairfield.
“It does send the message, ‘What’s wrong with Connecticut?’” Joe McGee, a vice president of the Business Council of Fairfield County and former state economic development commissioner, said Sunday. “I hope the governor and CEO sit down and talk about Connecticut.”
A move to Massachusetts may be more about the results of negotiations between UTC and Raytheon over the company’s leadership and office location than about how it functions in the state.
Senate Republican Leader Len Fasano of North Haven said the departure of two of the bestknown, high-profile Connecticut companies are similar. “Deja vu,” Fasano said.
“Weeks after Governor Malloy announced his budget, GE leaves. Now we
have a new governor who passes a budget that ignores the realities in Connecticut, and United Technologies leaves. This is eerily similar.”
“I think it’s as big as losing GE because it’s losing a name brand. The optic is really bad. This is a new governor going on an old path.”
If GE’s exit in 2017 is a guide, a move by UTC would likely fuel criticism of tax and economic development policies of Democrats, who have won three consecutive elections for governor.
A centerpiece of thenGov. Dannel P. Malloy’s economic development policy was a 2014 deal with millions of dollars in tax credits earned by the company in exchange for a commitment by UTC to build a headquarters for UTC’s jet engine manufacturing subsidiary, Pratt & Whitney that will remain in Connecticut for at least 15 years. UTC also agreed to build a Pratt & Whitney engineering “center of excellence” in Connecticut and keep the corporate headquarters of Sikorsky, now owned by Lockheed Martin Corp., in Connecticut at least five years.
It also required United Technologies to establish a customer training center at UTC Aerospace Systems in Windsor Locks, build new labs at United Technologies Research Center in East Hartford and invest in new research projects and capital projects.
In all, UTC agreed to spend $500 million for the upgrades and renovations. It opened its engineering center at its Pratt & Whitney headquarters and its revamped research center, both in East Hartford, in 2017.
UTC will still have a large presence in Connecticut. It operates a jet engine manufacturing plant in Middletown. UTC increased its Connecticut workforce by 3,000 in the past few years as Pratt & Whitney works through a backlog of its next-generation geared turbofan jet engine.
“The problem is that when the headquarters leave, senior managers lose interest in the state,” McGee said.
Reports of the deal surprised observers. “It’s certainly unexpected,” said Richard Aboulafia, an aviation analyst at the Teal Group in Fairfax, Va.
Six months ago, UTC closed on its $30 billion acquisition of Rockwell Collins Inc., an Iowa manufacturer of aviation and aerospace equipment such as cockpit cabins and digital navigation systems. UTC touted the deal as a drive to become a dominant player in the aviation industry that’s growing as demand is booming for air travel.
UTC spent more than $10 billion over 25 years to research, develop and test it’s next generation geared turbofan jet engine, which it touts as quieter and more fuel-efficient than what its competitors manufacture. It was dogged for a year or more by production problems and dominated UTC’s quarterly earnings calls with industry analysts.
A merger between UTC and Raytheon gives UTC extensive reach into the defense industry and provides Raytheon access to commercial aviation. Because there’s little overlap between their two businesses, the companies may not have to vault significant regulatory hurdles and the ability of UTC and Raytheon to move into the others’ industries provides scale and diversification that are ‘hugely attractive,” Aboulafia said.
The deal is another big move for Hayes, who became CEO in 2014. Following last year’s acquisition of Rockwell Collins, the Raytheon deal remakes UTC as an aerospace giant with products including cockpit electronics, jet engines, missiles and radars.
“It does send the message, ‘What’s wrong with Connecticut?’” Joe McGee, a vice president of the Business Council of Fairfield County