How will shareholders fare?
Executives said the combined company would return as much as $20 billion to shareholders through dividends and stock buybacks in the three years after the
merger was completed.
Investors appear to have doubts about the deal, however. Stock in United Technologies, whose shareholders would own about
57 percent of the combined company, has dropped 7 percent since the merger was announced. Raytheons shares are down 4.5 percent.
William A. Ackman, the chief executive of Pershing Square Capital Management, a hedge fund, questioned the merits of the merger in an email to the chief
executive of United Technologies, Gregory J. Hayes. Mr. Ackman wrote that United Technologies lacked the expertise to provide effective oversight of Raytheons businesses and, in attempting to do so, at a minimum, will lose
focus, according to a person who saw the email.
Before the announcement, United Technologies was splitting itself into three companies: an
aerospace division, which would merge with Raytheon; Otis, which makes elevators and escalators; and Carrier, which produces heating and cooling equipment.
Why are the companies merging now?
Raytheon and United
Technologies may be positioning themselves for a slowdown or reversal in a current surge in spending by the American military and commercial airlines. Three times in their announcement, the companies said the merger would help the new firm operate
through the business cycle, meaning in good times and bad.
Some economists believe that a big increase in mergers and acquisitions can
suggest that an expansion may be ending. Companies may be more likely to seek partners when they are struggling to increase profits and sales.
So far
this year, companies have announced mergers and acquisitions totaling $1 trillion, up 14 percent from the same period last year, according to data from Dealogic.
What consolidation does, which is what M&A is all about, is remove a source of competition, and it is a wonderful way of improving your pricing
power position, said David Rosenberg, chief economist at Gluskin Sheff, an investment firm based in Toronto.
Is Mr. Trump right to be
concerned about the deal?
The companies contend that because they are not currently in the same businesses, the merger will not increase the combined
firms market position in, say, jet engines or missiles. Just 1 percent of the companies sales overlap, Mr. Hayes said Monday on CNBC.
There is nothing anticompetitive about bringing these companies together, he said.
But antitrust experts say Mr. Trump is right to be worried.
Deals involving businesses that are closely related to each other can strengthen the combined companys market power. Raytheon and United Technologies
have suggested that the deal would create highly complementary technology offerings, something that critics of big mergers consider to be a red flag.
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