Raytheon-United Technologies Merger Is All About Cutting-edge Tech and Research

As the U.S. military looks to buy more cutting-edge technology, bulked-up research and development capabilities could give defense companies a leg up as they compete for lucrative Pentagon contracts. Size doesn't hurt either.With this in mind, aerospace firms Raytheon Co. and United Technologies Corp. are joining an ever-growing horde of defense firms that are undertaking mergers or acquisitions to gain heft in an industry that is becoming increasingly consolidated.The all-stock deal announced Sunday, billed as a merger of equals, would create a new, combined company known as Raytheon Technologies Corp., which would have about $74 billion in annual sales. The two firms touted the new company's "expanded technology and R&D capabilities."Raytheon has a large presence in North Texas, with about 8,000 employees at various sites across the region. It operates a space and airborne systems division in McKinney and built a two-complex campus in Richardson that opened in 2016.Waltham, Mass.-based Raytheon is known for making Patriot missiles, radar systems and sensors for spacecraft and aircraft, while Farmington, Conn.-based United Technologies makes commercial airline components and fighter jet engines. That diversification could make the combined company "more resilient across the business cycles" and give it breathing room to "support significant R&D investments that will help drive sustainable growth both for today and for decades to come," United Technologies Chief Executive Gregory Hayes said in an investor call Monday.Raytheon already had made "substantial" investments in research and development with the belief that it would help the company win Pentagon contracts, said Andrew Hunter, director of the defense industrial initiatives group at the Center for Strategic and International Studies think tank.The U.S. military has been increasingly interested in developing technology such as hypersonic weapons, which would fly at speeds of Mach 5 or faster, and laser weaponry. And Hayes said during Monday's call that the combined company would be in a position to "immediately address" research and development priorities in those areas."Merging our two companies brings Raytheon's deep expertise to vehicle integration, advanced guidance and control and payload and combines it with UTC's world-class propulsion technology," he said.The merger, which is expected to close in the first half of next year, is just the latest consolidation deal in the defense industry. Last year, military communications companies L3 Technologies Inc. and Harris Corp. announced their intent to merge, and Northrop Grumman Corp. acquired spacecraft and rocket motor manufacturer Orbital ATK Inc.But whereas the Northrop-Orbital deal vastly expanded Northrop's presence in the space business, Raytheon's merger with United Technologies is merely a "marriage of systems suppliers," Cowen analyst Cai von Rumohr said in a Monday note to clients."Technologies look complementary and should be helpful," he wrote. "However these synergies don't look transformative."Samantha Masunaga, Los Angeles Times (TNS)  Continue reading...

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