Third Point Opposes United Technologies-Raytheon Merger -- Update
June 28 2019 - 3:15PM
Dow Jones News
By Allison Prang and Thomas Gryta
Hedge fund Third Point LLC panned United Technologies Corp.'s
plan to merge with Raytheon Co. and is calling for the industrial
conglomerate to rethink the transaction.
In a Friday letter to United Technologies's board, Third Point
Chief Executive Daniel Loeb said UTC merging with Raytheon was a
"baffling change" of strategy, given UTC's stated aim to make
itself more focused.
Fellow activist William Ackman registered his own opposition to
the deal earlier this month, shortly after it became public.
Combined, the funds own about 12.3 million shares of UTC, or about
1.4% of the shares outstanding.
The Connecticut-based company is streamlining its operations
with a series of deals. Last year, it acquired aerospace company
Rockwell Collins and merged it with its own aviation businesses,
including engine maker Pratt & Whitney. It is now spinning off
its Otis elevator and Carrier building systems divisions.
The Raytheon deal, billed as a merger of equals with no premium
for Raytheon shareholders, would create a company with a valuation
exceeding $100 billion.
"Third Point will not support the merger in its current form and
plans to vote against it," said Mr. Loeb's letter.
Shares of United Technologies were up about 1% in Friday
afternoon trading, while Raytheon's shares fell more than 2%.
"We do not agree with the assertions and conclusions in the
Third Point letter," UTC said in a statement. It highlighted that
the board reviewed and unanimously approved the transaction, with a
close still expected in the first half of 2020. Raytheon declined
to comment.
In the letter, Third Point questioned the strategic and
financial rationale of the deal, criticizing UTC for planning to
issue shares before they can benefit from the spinoffs. It also
warned that the complicated combination would likely distract
senior executives.
"Management has had multiple execution challenges and has
repeatedly come up short on its long-term financial targets by a
wide margin," the letter said. "We are concerned that execution
will slip further as management becomes increasingly
distracted."
Mr. Ackman, of hedge fund Pershing Square Capital Management,
said he "cannot comprehend the strategic logic" of the
transaction.
Wall Street analysts have generally cheered the deal, but some
have warned about execution risk and questioned the strategy.
The new company, to be called Raytheon Technologies Corp., would
create the world's second-largest aerospace-and-defense company by
sales behind Boeing Co.
Executives have said the combination would cut costs and protect
against a slowdown in demand. UTC shareholders will own 57% of the
company.
Third Point criticized the leaders of both companies Friday. It
questioned Raytheon CEO Tom Kennedy's comment that the company
would be out of business in 10 years if it used its balance sheet
to return cash to shareholders.
It also said Greg Hayes's tenure as UTC CEO, and finance chief
before that, has been marred by poor results. Mr. Loeb also said
that Mr. Hayes had previously promised the fund that breaking up
the company would begin a transition to a new CEO within the next
two years.
"Indeed, this potential upgrade in management formed part of the
basis for our investment thesis and expectation of improved
operational results in the future," the letter said. Instead, Mr.
Hayes will become CEO of the merged company and add the title of
chairman after two years.
Write to Allison Prang at allison.prang@wsj.com and Thomas Gryta
at thomas.gryta@wsj.com
(END) Dow Jones Newswires
June 28, 2019 15:00 ET (19:00 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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