New major deal in the defense industry benefits the fund

Late on Sunday evening it was announced that the industrial conglomerate United Technologies (UTC) and the defense company Raytheon go together. This creates the largest defense and aerospace company in terms of revenue after Boeing. It is the largest deal of its kind in the US this year – a deal expected to close in the first half of 2020.

The merged company will be called Raytheon Technologies Corporation, will be based in Boston and is estimated to have annual sales of the equivalent of SEK 700 billion.

With the deal, UTC is taking further steps in refining itself as an aviation and defense company. Two years ago, they bought the aircraft parts manufacturer Rockwell Collins for the equivalent of SEK 280 billion. Earlier it was clear that the subsidiaries Otis (elevators) and Carrier (building systems) were to be spun off and listed on the stock exchange.

Both United and Raytheon are important suppliers to the US military. In the case of Raytheon, the company is the world's second largest manufacturer of missiles. The company manufactures, for example, the Patriot air defense system, which the Swedish defense will buy, but also radar and cyber security systems. UTC supplies equipment to the Pentagon in the form of aircraft engines and aviation systems, among other things.

In a comment to the store says Thor Sinclair, which manages GDS Fund:

- After the Harris Corp and L3 Technologies merger here, we now have another example of a (much larger) friendly merger trying to achieve efficiency and better scale of operations. It is common that we see collaborations between defense companies and with this huge merger, I think there will be a big focus on the profitability of a collaboration corresponding to a group that can fulfill all procurement requirements itself.

- Companies like the new Raytheon Technologies will probably be able to offer better products at a lower price and better profitability than what the individual companies can offer today and as we see increasing competition, I think more mergers will come.

GDS Fund currently has 7.5 percent of the portfolio in Raytheon and approximately 4 percent in UTC. Just before the New York Stock Exchange opened on Monday, trading took place Raytheon stock up around 7 percent while UTC stock was up just over 3 percent.