NEW YORK • Shares of defence contractor Raytheon and United Technologies pared gains yesterday after US President Donald Trump said he was a "little concerned" about their US$121 billion (S$165 billion) merger to create a new aero-defence company.
Mr Trump said the merger would harm competition and make it more difficult for the US government to negotiate defence contracts.
"I want to see that we don't hurt our competition," he said in an interview with CNBC.
The surprise deal, announced on Sunday, will create the world's second largest aero-defence company by sales behind Boeing, and allow Raytheon to expand into commercial aviation while reducing United Tech's dependence on aerospace.
The new entity will be called Raytheon Technologies when the deal closes in the first half of next year, after United Tech completes the separation of its Otis elevator and Carrier airconditioner businesses, the companies said in a statement. While billed as a merger of equals, current United Tech shareholders will own most of the combined company, which is expected to be worth well over US$100 billion, according to Bloomberg Intelligence.
The combination "will define the future of aerospace and defence", United Tech chief executive officer Greg Hayes said in the statement.
The bigger company will combine United Tech's Pratt & Whitney F-35 fighter jet engines with Raytheon's Patriot missile-defence products and expertise in areas such as radars, munitions and cyber security.
"The proposed UTX-RTN merger looks like a good, but not transformative, fit with solid financials and modest regulatory risk. Investors should like the deal for RTN and may be neutral to slightly positive for UTX," Cowen analyst Cai von Rumohr said in a note.
The two companies have some common customers, but have argued that their business overlap is limited, as they face the prospect of scrutiny from antitrust regulators.
JP Morgan analyst Seth Seifman said in a note: "The RTN-UTX merger is a surprise but we see real rationales on both sides in scale, diversification in the face of cyclical uncertainty, and financial benefits... UTX also gets to de-lever with Raytheon's balance sheet and Raytheon holders get compensated in return."
Under the deal, Raytheon shareholders will receive 2.3348 shares in the merged company for each Raytheon share and the new company will assume about US$26 billion in net debt. United Tech's shares were down about 2 per cent at US$129.40, while Raytheon's stock was up 1.7 per cent at US$189.2 in morning US trade.