M&A

One defense merger gets (somewhat) approved, another one closes

A pair of transactions being undertaken among three aerospace-and-defense hardware companies moved ahead this week that represent the distinct paths they are following.

First, the Justice Department has cleared the merger of Raytheon and United Technologies Corp.’s A&D businesses that represents the largest-ever such combination in the sector. The deal is expected to close in April and create a larger company with close-to-equal footings in both the defense and commercial aerospace markets, plus more resources to invest in research-and-development.

But that approval comes with strings. Raytheon is required to sell its military airborne radio business, while UTC must divest both its military GPS and space-based optical systems units in order to preserve competition.

DOJ filed an antitrust lawsuit in U.S. District Court in Washington, D.C. to block the merger and simultaneously submitted a proposed settlement that outlined those divestitures as the condition for the deal to proceed.

BAE Systems’ U.S. subsidiary was lined up in January as the buyer of the radio and GPS businesses for a combined price tag of around $2.3 billion. Also in January, UTC CEO Greg Hayes said in an earnings call that they will likely sign off on the sale of the optics business “in the next couple of months” and close it “in the back half of the year.”

DOJ said the optics business should be sold “to an acquirer to be approved by the United States.” The department said Raytheon and UTC are the only suppliers for military airborne radios and GPS systems for air and sea platforms, plus among the only three companies that make components for certain satellites used by defense and intelligence agencies for missile launch warnings and other national security missions.

The second significant deal to highlight in the defense hardware market is one that has closed: Huntington Ingalls Industries’ $350 million acquisition of marine robotic technology maker Hydroid first announced in February.

Huntington Ingalls in conjunction has established a new unmanned systems business within its technical solutions segment that houses substantially all of the shipbuilder’s work in that domain. HII’s strategy essentially centers around being the same kind of leader in unmanned vessels that it is of the manned variety.

That strategy means deep expertise in both the vehicles themselves and the underlying technology that augments them such as batteries, propulsion systems, sensors and software.

Hydroid President and Chairman Duane Fotheringham will join Huntington Ingalls as president of the unmanned systems unit, while HII’s Mary White will move into a new role as vice president of operations and strategy. White was formerly senior director of unmanned maritime systems for HII Technical Solutions -- the shipbuilder’s government services segment.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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