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Justice Department requires divestitures in merger between UTC and Raytheon

Christian Fernsby |
The Department of Justice announced that it is requiring United Technologies Corporation and Raytheon Company to divest Raytheon’s military airborne radios business and UTC’s military global positioning systemsand large space-based optical systems businesses in order to proceed with their proposed merger.

Topics: MERGER    UTC    RAYTHEON   

Without these divestitures, the merger would eliminate competition between two of the primary suppliers of military airborne radios and military GPS systems to the Department of Defense (DoD), and enable the merged firm to lessen competition for multiple components used in reconnaissance satellites sold to DoD and the wider U.S. intelligence community.

The department’s Antitrust Division filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block the proposed merger. At the same time, the Antitrust Division filed a proposed settlement that, if approved by the court, would resolve the competitive harm alleged in the lawsuit.

According to the department’s complaint, UTC and Raytheon are the only firms that develop, manufacture, and sell military airborne radios, which allow for secure voice, data, and video communications to and from aircraft, and are installed on every airplane and helicopter currently used by DoD.

The department’s complaint also alleges that UTC and Raytheon are the only competitors for military GPS systems for aviation and maritime applications, and are two of the three competitors for military GPS systems for ground applications.

Military GPS systems receive and process satellite signals, providing information regarding position, navigation, and timing. The complaint alleges that the merger would eliminate competition between UTC and Raytheon for all of these products, likely leading to higher prices, diminished innovation, lower quality, and less favorable contract terms.

The department’s complaint further alleges that UTC and Raytheon are among the few firms capable of producing several components for space-based electro-optical/infrared (EO/IR) reconnaissance satellites, which provide DoD and U.S. intelligence community customers with essential information, including early warning of missile launches.

Specifically, UTC is one of only two companies able to build large space-based optical systems, and Raytheon is a leading supplier of detectors called focal plane arrays (FPAs). Raytheon is the only firm that produces FPAs that detect visible light, and one of two firms that produces FPAs that detect infrared light.

Large space-based optical systems and FPAs are components of EO/IR reconnaissance satellite payloads – the system that carries out the mission of the satellite – which Raytheon also produces. According to the department’s complaint, the merged firm would have the ability and incentive to require EO/IR payload builders seeking to purchase Raytheon’s industry-leading FPAs to also purchase UTC’s large space-based optical systems, and could deny Raytheon’s EO/IR payload competitors access to UTC’s large space-based optical systems.

As a result, the complaint alleges that the transaction likely would result in higher prices, less favorable contract terms, and diminished innovation for large space-based optical systems and EO/IR reconnaissance satellite payloads.

Under the terms of the proposed settlement, the parties must divest Raytheon’s military airborne radios business, including facilities in Fort Wayne, Indiana and Largo, Florida, and UTC’s military GPS business to BAE Systems, Inc. (BAE), or an alternate acquirer approved by the United States.

BAE is the U.S. subsidiary of BAE Systems plc, an international defense, aerospace, and security company that provides a wide range of products and services for air, land, and naval forces. The proposed settlement further requires the parties to divest UTC’s optical systems business, including a facility in Danbury, Connecticut, to an acquirer to be approved by the United States.

The Antitrust Division and DoD worked closely throughout the course of the investigation. In addition, the Antitrust Division, the European Commission, and the Canadian Competition Bureau cooperated closely throughout the course of their respective investigations.

UTC, a Delaware corporation headquartered in Farmington, Connecticut, produces a wide range of products for the aerospace and defense industries. UTC had sales of approximately $77 billion in 2019.

Raytheon, a Delaware corporation headquartered in Waltham, Massachusetts, is one of the world’s largest defense manufacturers, with significant capabilities in radars and missiles. Raytheon had sales of approximately $29 billion in 2019.


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