-Possible Fireworks Ahead
On June 10, 2019, RTN and UTX agreed to merge their aerospace and defense operations. The proposal is complex since RTN holders will only be merging with the UTX defense operations after UTX spins off its Otis and Carrier divisions. At the end of the transaction, UTX holders will own 57% of the new company (Raytheon Technologies) and RTN holders will own 43%. The problem for RTN holders is valuing the UTX company that will be merging with RTN. The merger will not close until mid to late 2020, due to regulatory review and the execution of the two proposed spin-off transactions.
The complexity of this proposal and the long-required timetable to complete it raise the possibility of a third party bid for RTN by another large aerospace/defense giant. The RTN-UTX agreement carries a $1.785 billion breakup fee from RTN to UTX, if RTN accepts another bid. RTN is now vulnerable to a third party, unsolicited bid since its board has now agreed to be acquired. A brief look at three possible bidders -GD, NOC, and LMT reveals the fact that all three of these companies have annual revenue greater than the $27.5 billion figure RTN reported for the 2018 year. While GD and NOC have a market cap close in value to the RTN market cap, the LMT market cap of $99 billion greatly exceeds RTN’s $52.5 billion. Properties like RTN become available rarely and many observers expect GD, NOC and LMT to take a close look at intervening in the announced RTN-UTX proposal because it is so complex and will require such an extensive review period.