United Technologies
Raytheon headquarters in Waltham. Credit: Coolcaesar/Wikimedia Commons.

American aircraft manufacturing company United Technologies (UTC) and defence contractor and industrial corporation Raytheon have agreed to combine their aerospace and defence capabilities in one of the largest corporate mergers this year.

The all-stock deal merger is expected to create a new $121bn company that can provide advanced technologies to address rapidly growing segments within the aerospace and defence sectors.

To be called Raytheon Technologies Corporation, the new company is expected to have annual revenues of $74bn and will be headquartered in the greater Boston metro area.

Under the terms of the deal, UTC shareholders will own 57% of the combined company and Raytheon shareholders will own the rest.

Raytheon shareholders will receive 2.3348 shares in the combined company for each Raytheon share held.

The companies expect the merger to result in $1bn in cost synergies by the end of the fourth year.

The combined company’s board will consist of 15 members, consisting of eight directors from UTC and seven from Raytheon.

UTC chairman and CEO Greg Hayes will lead Raytheon Technologies and Raytheon CEO Tom Kennedy will be the executive chairman. Hayes will assume the role of Chairman and CEO two years after the close of the transaction.

The newly created company is expected to return around $20bn of capital to shareholders in the first three years after the completion of the deal, and will also assume $26bn in net debt.

UTC owns the Pratt & Whitney engine maker and Collins Aerospace. It provides electronics, communications and other equipment to commercial plane makers.

UTC previously announced that it would spin-off the Otis elevator division and Carrier building systems unit to retain focus on aerospace. These two companies will not be part of the merger and will be separated from UTC later next year.

“The companies expect the merger to result in $1bn in cost synergies by the end of the fourth year.”

Subject to customary closing conditions, including regulatory approvals and spin-off of the two units, the transaction is expected to close in the first half of 2020.

Citigroup Global Markets is acting as financial adviser to Raytheon and RBC Capital Markets provided a fairness opinion. Shearman & Sterling is serving as legal adviser to Raytheon.

Morgan Stanley, Evercore, and Goldman Sachs are acting as financial advisers to United Technologies. Wachtell, Lipton, Rosen & Katz is serving as legal adviser to United Technologies.