The Department of Justice last Thursday evening agreed to the pending merger between United Technologies Corp. [UTX] and Raytheon [RTN] with one final caveat, that UTC divest its space-based optical business for reconnaissance satellites.
The merger settlement also requires Raytheon sell its military airborne radios business and for UTC to sell its military GPS business, deals both companies previously arranged with BAE Systems for a combined $2.2 billion to help get DoJ approval for their combination. BAE’s deals for the two business units were announced in January and will close once the UTC-Raytheon merger is completed.
UTC said earlier this month that it expects the merger to close around April 3, once it finishes divesting its Carrier and Otis operating segments. The new company will be called Raytheon Technologies.
The space-based electro-optical and infrared business is part of UTC’s Collins Aerospace segment.
“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 DoJ said in its statement Thursday.
The statement says UTC is one of two competitors to build large space-based optical systems and that Raytheon is one of the leading suppliers of focal plane arrays (FPAs) and one of two companies that produces FPAs that detect infrared light. It also points out that Raytheon manufactures electro-optical/infrared satellite payloads, which include FPAs and optical systems.
As such, DoJ said, “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.” This would mean higher prices, unfavorable contract terms and less innovation for space-based optical systems and EO/IR reconnaissance satellite payloads, it said.