UTC: ‘Strong presence’ to remain
CEO says merger with Raytheon won’t end Connecticut operations
The chief executive officer of United Technologies Corp. on Monday sought to assure employees and Connecticut that the conglomerate will maintain a “strong presence” in the state long after its merger with military contractor Raytheon Co. and impending move of its Farmington headquarters to the Boston area.
“We want to emphasize, particularly for the benefit of United Technologies employees, this does not mean that we’re exiting operations in Connecticut and moving to Boston,” CEO Greg Hayes told industry analysts on a conference call. “In fact, Raytheon Technologies will maintain a strong presence in Connecticut for years to come.”
Hayes and Tom Kennedy, CEO of Raytheon, said they had been quietly negotiating the merger for nearly a year. They said the two companies will each hire about 10,000 workers this year. The deal had been in the works for nearly a year.
Although 100 top corporate jobs will shift from Connecticut to Boston with the move of the headquarters from Farmington, there are no job cuts expected at UTC’s Pratt & Whitney or Collins Aerospace.
UTC and Raytheon are expected to combine next year in a renamed Raytheon Technologies Corp., becoming the second biggest aerospace and defense company, after Boeing, with annual revenue of about $74 billion.
The two companies, which will have a market value of more than $100 billion, announced Sunday what it bills as a merger of equals expected to close in the first of half of 2020. UTC shareholders will own 57 percent of Raytheon Technologies and Raytheon Co. share owners will hold 43 percent. UTC will control eight of the 15 board seats.
Hayes will be CEO and Kennedy will be chairman for two years, to be succeeded by Hayes.
In the last few years, Connecticut has lost the corporate headquarters of two other major corporations, adding to concern that the state is not hospitable to business. General Electric left Fairfield for Boston in 2017, while Aetna was acquired by CVS in 2018.
UTC’s jet engine manufacturer, Pratt & Whitney, operates manufacturing sites in East Hartford and Middletown and the company’s research center also is in East Hartford. About 19,000 UTC employees work in Connecticut.
President Donald Trump, in an interview on CNBC, questioned the deal’s impact on competition among Pentagon suppliers.
“When I hear they’re merging, does that take away more competition?” he said. “It’s hard to negotiate when you have two companies and sometimes only one bid.”
Hayes, who appeared on CNBC minutes later, said the president should welcome the deal.
“Once he understand the benefits of this merger in terms of what it’s going to do to reduce costs to the government, what it’s going to do to improve the technology of the United States, our defense profile, what it’s going to do for jobs in this country, I think he’s going to be supportive as he has been for both of our companies over his administration,” he said.
Investors were unenthusiastic about the merger. Shares of UTC closed at $128.01, down 3 percent while Raytheon ended the day at $187.19, up a fraction of 1 percent. Some analysts blamed Trump’s comments, but others found fault with the deal.
Credit Suisse analyst Robert Spingarn wrote in a note that while the deal achieves size and diversification, “the economic benefits seem modest and we do not see additional scale that will materially deepen existing moats or enhance competitiveness.”
Cai von Rumohr of Cowen Equity Research said the proposed merger “offers no apparent opportunities to enter large new markets or move upstream to become a platform supplier.” That’s in contrast to the merger of Northrop Grumman Corp. and Orbital ATK Inc., “which was truly strategic” and allowed Northrop to become a player in space and missile markets, he said.
Nicholas Heymann, an analyst at William Blair & Co., said Raytheon Technologies is expected to “more rapidly advance commercialization” of key defense technologies for missile systems, directed energy weapons and intelligence, surveillance, and reconnaissance early threat detection.
In addition, he said Raytheon is a leader in artificial intelligence technology, data analytics and other applications that are increasingly in demand among airline customers. Some analysts questioned the timing of the deal as UTC spins off Otis elevator and Carrier, its heating and cooling equipment manufacturer, to focus on aerospace following last year’s $30 billion acquisition of Rockwell Collins Inc.
Executives of UTC and Raytheon were confronted on the call about the merging two large companies while spinning off two smaller ones.
“If you look at the timing of the deal, there’s a lot going on, right?” one analyst asked. “Will there be anybody left at the company to focus on operations, particularly at senior management levels?”
“From a UTC perspective, we have never lost our focus on operations,” Hayes said. “A lot of work, but I wouldn’t worry about anybody losing sight.”
Kennedy said he initiated the deal. “I did call Greg probably in early summer of last year,” he said.
Hayes deferred talk on a Raytheon deal as he worked out details of UTC’s spin-off of Otis and Carrier.
“Obviously Greg was very busy,” Kennedy said. “But he did say and he did recognize that if we could make something like this happen how tremendous it would be not only for our shareholders, but also for our customers and obviously, our employees.
Hayes compared UTC’s interest in the defense contractor to its moves on Rockwell Collins and Goodrich Corp.,, a Charlotte, N.C., aviation and aerospace manufacturer that UTC acquired in 2012 for $18 billion.
Hayes said he sees little regulatory trouble because UTC and Raytheon have almost no overlap. Of the combined companies, less than 1 percent of sales, or $750 million, comprises an area that spans the two companies, he said.
“This is truly a complementary deal from the technology standpoint, from the product standpoint,” he said.