June 28, 2019 / 1:37 PM / 2 months ago

Hedge fund chief Daniel Loeb opposes United Technologies, Raytheon merger

BOSTON (Reuters) - Billionaire investor Daniel Loeb said on Friday that his hedge fund Third Point LLC will vote against the planned merger of United Technologies Corp (UTX.N) and Raytheon Co (RTN.N), saying there is no “strategic rationale for this transaction.”

FILE PHOTO: A screen shows the logos and trading information for defense contractor Raytheon Co, and United Technologies Corp. on the floor at the New York Stock Exchange (NYSE) in New York, U.S., June 17, 2019. REUTERS/Brendan McDermid

“We have concluded that the proposed combination of United Technologies and Raytheon is ill-conceived and unlikely to create value for UTC shareholders,” Loeb wrote in a letter to the board of directors of United Technologies

On June 10, the industrial conglomerate and military contractor announced a $120 billion (£94.5 billion) merger, a deal that would intensify the pace of consolidation in the aerospace and defence industry and is expected to be completed in the first half of next year.

In his letter, Loeb criticized United Technologies management for turning its back on previous plans to break the company into three businesses - aerospace, Otis elevators and Carrier air conditioners - and accused United Technologies Chief Executive Greg Hayes of engineering the merger to secure his employment.

United Technologies said it does not agree with Loeb’s conclusions, adding that its board remains confident that the merger will create a premier systems provider. Other shareholders “agree with us as to the desirability of the merger,” the company said.

Loeb, a forceful supporter of United Technologies’ plan to break into three businesses, called the planned merger a “baffling change in UTC’s strategy.”

Loeb is now the second powerful Wall Street investor to oppose the deal after rival hedge fund manager William Ackman wrote to United Technologies to complain even before the deal was publicly announced.

Neither Loeb nor Ackman, whose firms each own less than 1 percent of the company, could single-handedly derail the deal and each has said there are other investors who share their concerns.

Both men accused Hayes of trying to extend his reach, with Loeb writing on Friday that a “sweetheart employment agreement” for Hayes would “entrench him for another half a decade ultimately as both CEO and Chairman of the Board!”

Bloomberg first reported that Loeb sent the letter to United Technologies.

United Technologies’ deal with Raytheon faces regulatory hurdles. The U.S. Defense Department and big customers like Boeing Co (BA.N), Lockheed Martin Corp (LMT.N) and Northrop Grumman Corp (NOC.N) will have a lot of clout in the antitrust review, and may worry about over-reliance on one company for a big suite of products.

Reporting by Svea Herbst-Bayliss, with additional reporting by Rachit Vats; editing by Susan Thomas and Steve Orlofsky

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