Activist investor raps UTC-Raytheon deal as undercutting share price, pledges opposition

Jun. 13--United Technologies Corp. is running into financial and political resistance to its planned merger with defense contractor Raytheon Co.

Bill Ackman of Pershing Square Capital Management, a significant UTC shareholder who last year pushed the conglomerate to shed its Otis elevator and Carrier heating and cooling manufacturing businesses and focus on aerospace, criticized the deal in an email to Greg Hayes, UTC's CEO.

The transaction will limit UTC's aerospace business and be funded by issuing shares that will reduce their value at a time when the stock is already trading at a discount, the activist investor said in his message.

"We are extremely concerned about what we have read," Ackman told Hayes, according to Bloomberg News. "If the company intends to go forward with such a transaction, we will oppose it, publicly if necessary, as we expect will the substantial majority of the company's shareholders."

The Wall Street Journal first reported Ackman's opposition.

In a statement, UTC said, "We are confident that our shareholders will see the merits of this transaction and the value it brings to them and the company. We will be working diligently in the days and weeks ahead to make sure that the details of the transaction are presented to and fully understood by all shareholders."

Hayes was asked Wednesday about Ackman's criticism. In an appearance on Fox Business Network, the CEO said in the long-term, the merger will create "unprecedented ability" to meet customer demand.

"I think importantly, we're going to generate a lot of cash," with $8 billion in free cash flow that will grow at "double-digit rates" into the near future, he said.

"This is not a defensive acquisition," Hayes said. "We're coming together out of strength."

He said he plans to speak soon to Ackman.

Investor Dan Loeb's Third Point Management, which likewise owns significant shares in UTC and pushed the conglomerate to spin off Otis and Carrier, also opposes the deal, according to a report in the New York Post.

Billed as a "merger of equals," the deal is being criticized in Congress for its potential to monopolize defense contracting.

Rep. Ro Khanna, a California Democrat, a member of the House Armed Services Committee whose district includes Silicon Valley, said he will call for a congressional hearing on the merger and its impact on the defense sector.

"This pending deal will likely raise prices, harm workers, stifle competition and undermine innovation," he said in a statement." We cannot have the taxpayers and our soldiers bear the cost for the profits of defense contractors."

UTC announced Sunday the proposed merger with Waltham, Mass.-based Raytheon, creating an aerospace-defense company valued at more than $100 billion.

The proposed takeover would take place after United Technologies completes a plan to spin off Otis and Carrier in the first half of next year and become primarily an aerospace provider if shareholders and regulators approve it.

Shares of UTC closed at $124.07 Wednesday, up a fraction of 1 percent. Shares closed down Monday and Tuesday. Raytheon shares ended the day at $177, down also a fraction of 1 percent.

Reporting by Bloomberg News is included in this report.

Stephen Singer can be reached at ssinger@courant.com.

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