The proposed mega-deal between United Technologies Corporation (UTC) (NYSE: UTX) and Raytheon Co. (NYSE: RTN) has moved one step closer to fruition after receiving the approval of the U.S. Justice Department (DOJ). The DOJ stipulated certain conditions the two companies would have to meet before the deal could be carried out. Anti-trust approval is required for global suppliers of military systems and equipment such as UTC.
According to the DOJ, Raytheon and UTC are the only suppliers of military airborne radios and military GPS systems for air and sea that the Department of Defense uses. The companies also are among the few that make components for some military satellites that warn of missile launches.
The DOJ's conditions included the divestment of Raytheon's military airborne radios business. UTC must also divest from its military global positioning systems and large space-based optical systems business.
"Today's settlement protects the American taxpayer by preserving competition that leads to lower costs and higher innovation in critical military and defense products. The merger, as originally proposed, would have eliminated competition in the supply of military airborne radios and military GPS systems," said Assistant Attorney General Makan Delrahim, a member of the Antitrust Division.
In June, UTC agreed to merge its aerospace business with Raytheon, a U.S. contractor, to create a new entity worth roughly $128 billion. This would be the largest merger ever in the aerospace industry.
The deal won approval from the European Union in early March. This approval by the European Commission also included conditions.
According to the Commission, "the proposed remedies remove the entire horizontal overlap between UTC and Raytheon in both military GPS receivers and military airborne radios globally."
UTC has plans to sell off some of its assets. The UTC division Collins Aerospace's Military Global Positioning System based in Cedar Rapids, Iowa is to be purchased for $1.92 billion in cash by BAE Systems PLC (OTC: BAESY), a United Kingdom-based military-technology company. There is some expectation that Collin's Aerospace sales will be negatively impacted by the halt in the production of the Boeing 737 MAX (NYSE: BA).
BAE also has plans to purchase Indiana-based Airborne Tactical Radios, a division of Raytheon, for $275 million. This sale is a part of the DOJ's conditions, as well, and they have approved the purchase.
Other requirements put in place by the Commission included the spinoff of UTC's Carrier and Otis divisions. These spinoffs are scheduled to occur on April 3.