United Technologies, Raytheon to combine as aerospace giant

United Technologies Corp. agreed to buy Raytheon Co. in an all-stock deal, forming an aerospace and defense giant with $74 billion in sales in one of the industry’s biggest transactions ever.

The new entity will be called Raytheon Technologies Corp. when the deal closes in the first half of 2020, after United Technologies completes the separation of its Otis elevator and Carrier air-conditioner businesses, the companies said in a statement Sunday. While billed as a merger of equals, current United Technologies shareholders will own most of the combined company, which is expected to be worth well over $100 billion, according to Bloomberg Intelligence.

The combination “will define the future of aerospace and defense,” United Technologies Chief Executive Officer Greg Hayes said in the statement. The bigger company will combine United Technologies’ Pratt & Whitney F-35 fighter jet engines with Raytheon’s Patriot missile-defense products and expertise in areas such as radars, munitions and cybersecurity.

Both companies’ shares stand to benefit because of the potential synergies, which could free up capital that may be deployed, Jefferies wrote in a note.

United Technologies rose 2.2 percent to $135 at 9:33 a.m. Monday in New York, while Raytheon climbed 1 percent to $187.80. Each advanced more than 20 percent this year through Friday, in line with a Standard & Poor’s index of aerospace and defense manufacturers.

“It’s largely a diversification play to build an absolute behemoth aerospace and defense contractor,” said Douglas Rothacker, an aerospace and defense analyst.

United Technologies makes both commercial and military engines, while Raytheon is focused most on defense, according to Rothacker.

Hayes will hold the CEO job in the combined organization, while Raytheon CEO Thomas Kennedy will become the executive chairman. Hayes will ascend to both roles three years after the deal closes.

Under terms, Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share they hold. When the dust settles, shareholders of United Technologies will own approximately 57 percent of the new firm on a fully diluted basis while Raytheon’s will own approximately 43 percent. Raytheon will contribute seven of the 15 board positions, including the lead director.