UTC: ‘Strong pres­ence’ to re­main

CEO says merger with Raytheon won’t end Con­necti­cut op­er­a­tions

Hartford Courant - - Front Page - By Stephen Singer

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.

REUTERS

United Tech­nolo­gies CEO Greg Hayes said that the com­pany will have a “strong pres­ence” in Con­necti­cut af­ter merg­ing with Raytheon.

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