In the world of mergers, the coming together of two gigantic companies involved in the defense sector is pretty rare, but that has not stopped United Technologies and Raytheon from announcing their mega-merger. However, in this regard, it is perhaps important to point out that companies in the defense sector have been consolidating in this way for years, and it makes sense for a number of reasons. Defense contracts are an extremely lucrative business, and if competition can be reduced in this way, then it is perhaps possible for companies to ensure that they get a major chunk of the business any which way.
The new entity will be a seriously sprawling behemoth that will have some of the most well-known products in the world of defense in its portfolio. The words best-known missile defense systems Tomahawk and Patriot, in addition to engines for F-16 fighter jets, space suits and intelligence technology systems will become part of the portfolio. Needless to say, it’s a highly impressive portfolio and could propel the merged entity’s revenues of a jaw-dropping $74 billion. In addition to that, the costs will also be reduced significantly as any product for which there is any kind of duplication is going to be phased out. It is estimated that the combined saving on costs could be as much as $1 billion a year, and that is something that cannot be sniffed at.
Analysts believe that the deal is more important for United Technologies. Joseph DeNardi, who is a defense analyst, stated, “The rationale seems to address (United Technologies’) needs more than Raytheon’s unless this was also about simply finding the best partner in a consolidating space. A scenario whereby Raytheon would be competing for longer-term against Lockheed Martin and a combined Northrop + (United Technologies) may have been an unacceptable outcome of consolidation for Raytheon.” However, the deal is not yet completed, since it has to be approved by the relevant regulatory authorities but it does not seem that there are going to be any hurdles.