Rare Flights to Raytheon Headquarters Signal UTX & RTN Merger

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It started with a phone call in mid-2018. Raytheon’s CEO Thomas Kennedy phoned United Technology’s CEO Greg Hayes to suggest the two companies consider merging. With the wheels in motion, talks continued until June 9, 2019 when the two companies announced an all-stock merger. The combined company will have a market cap of over $100bn after spinoffs.

Clients of JetTrack saw the deal playing out in the month leading up to the announcement. After four years of not flying to Bedford, MA (the closest airport to RTN’s Waltham, MA headquarters), UTX all of a sudden took three flights in May. The deal may have started with a phone call, but it was consummated with in-person visits.

UTX Bedford Flights.PNG

Analysts using JetTrack had already seen the acquisition of Rockwell Collins by United Technologies in 2017. Seeing the consolidation of the overall aerospace and defense industry, they had already set up notifications in JetTrack for any overlap or headquarters visits by the industry’s biggest players. The first Bedford flight was a reason to start looking at what a potential deal could look like. The subsequent two increased the probability of a deal.

As always, it’s never one flight that matters. It’s context - frequency, geography , and investor’s own knowledge. All three came into play with the merger of United Technologies and Raytheon.

“There is some truth to the idea that bigger is better,” Jefferies analyst Sheila Kahyaoglu wrote in a note to clients Sunday. “With common customers there is some leverage to size and the supply chain.”

“What’s even more important is the underlying technology both companies are developing,” Mr. Kennedy said in an interview. Raytheon first approached Mr. Hayes about a deal last year, he said.

Byron Callan, a defense analyst at Capital Alpha LLC, said the proposed deal reflected the likely slowing of military spending increases and the need for companies to boost their investment in new technologies.

The tie-up would complete a radical transformation at UTC, a once sprawling conglomerate that already plans to spin off its Otis elevator and Carrier building-systems businesses into separate companies.

The deal isn’t expected to attract significant antitrust scrutiny, analysts said, because UTC and Raytheon don’t compete against each other in most of their markets.“

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