The EU Commission has given the green light to the merger of Raytheon and United Technologies (UTC); however, the approval comes with several conditions.

The decision clears one of the last hurdles in the way of the merger of the defence and aerospace giants, which will see the companies’ business groups streamlined and the divestment of a number of businesses to satisfy international authorities.

The EU Commission carried out an investigation that raised concerns about the consolidation of the two companies’ work on military GPS receivers and military airborne radios, saying that the merger would ‘reduce competition’ in both markets.

The EU Commission said: “Concerning military GPS receivers, UTC and Raytheon are two of the very few suppliers of the core military GPS technology worldwide, thus including in the European Economic Area (EEA), which in turn constitutes a critical input for a broad range of military systems. Therefore, the merged entity would have faced very limited competition from alternative suppliers following the transaction.”

The EU commission said of the airborne radio business: “Concerning military airborne radios, UTC and Raytheon are two major suppliers of these systems worldwide and, in particular, the only two real options currently available to US military aircraft manufacturers. EEA armed forces procure a variety of military aircraft from US manufacturers; therefore the Commission was concerned that the concentration would result in harm to EEA armed forces, including higher prices.”

In response to the EU’s concerns, Raytheon-UTC offered to divest the businesses, leading in January to BAE Systems announcing that it was seeking to acquire Collins Aerospace’s GPS business and Raytheon’s Airborne Tactical Radios business as part of a deal worth more than $2bn on approval of the merger.

Under the definitive Asset Purchase Agreement, BAE Systems is set to acquire Collins Aerospace’s Military Global Positioning System business for $1.925bn cash and Raytheon’s Airborne Tactical Radios business for $275m.

At the time BAE Systems chief executive Charles Woodburn said: “These proposed acquisitions present a unique opportunity to add high-quality, technology-focused businesses to our Electronic Systems sector. It’s rare that two businesses of this quality, with such strong growth prospects and close fit to our portfolio, become available.

“The strategic and financial rationale is strong and these proposed acquisitions, which are focused on areas of highest priority defence spending, will further enhance the group’s opportunity for continued growth in Electronic Systems. We look forward to welcoming the employees of the two businesses to the company, as we work together to help drive our business forward successfully.”

Following the offer to divest the business to BAE Systems, the EU Commission concluded that the move removed ‘the entire horizontal overlap between UTC and Raytheon in both military GPS receivers and military airborne radios globally’ and that following this the merger no longer raised any competition concerns in the EEA.

Raytheon share price:

Outside radios and GPS, the EU saw no other competition concerns across the companies’ other areas of operations, and found that the ‘merged entity would have neither the ability nor the incentives to restrict competitors’ access to essential input or to a sufficient customer base.’

The merger of Raytheon and UTC will “create Raytheon Technologies Corporation, a premier systems provider with advanced technologies to address rapidly growing segments within aerospace and defence,” according to a press release from the two companies.

UTC share price:

With the financial aspect of the deal set to be closed by mid-2020, shares in the resultant company will be split with UTC shareholders holding 57% of the company and Raytheon holding 43%. The deal was originally given the green light by both companies’ boards of directors last August.

Under the merger, Raytheon will consolidate its four business divisions into two sectors called Intelligence, Space & Airborne Systems and Integrated Defense & Missile Systems. The merged company will be based in Boston, the current home of Raytheon.

It is expected that Raytheon Technologies will book around $74bn in sales. The final company will have a staff of 60,000 engineers and Raytheon and UTC previously said they expect to spend $8bn annually on research and development efforts.