Case Study

By: Laura García Chávez

Question 1: Slides 2-8

Question 2: Slide 9
Question 3: Slide 10
Question 4: Slide 11
Question 5: Slide 12
Question 6: Slide 13

Specific function of the Merger
- All of the provisions related to the Merger are listed in this
article.
- The provisions related to the merger set the ground rules for
Raytheon and UTC to combine their business, operations and
structure.
- When the Effective Time comes → Merger Sub and Raytheon
will merge. The survival company will be Raytheon and it will
own all the privileges, powers and rights of Merger Sub.
- ART 1 specifies the place in which the closing may take place
and propose an alternative solution in case it is not possible for
the parts to close the deal that day.
- The effective time may be understood as the time when the
Certificate of Merger is executed and completed. The Secretary
of State of the State of Delaware must be present.
- The applicable provisions of the Delaware General Corporation
Law will determine the effects of the merger.
- The key element of this article is to understand that two
companies will come together. Furthermore, understand that
the survival company that will assume all assets and liabilities
will be Raytheon. Also, it specifies in great detail the time and
place the closing of the deal will take place and clarify key
concepts such as “Effective Time”, “Closing”, “Certificate of
Merger” and “Effects of the Transaction”.
Specific function of certain Governance
matters
- The new company may be renamed Raytheon Technologies
Corporation by the time the effective time framework comes.
- Headquarters: will be installed in the Greater Boston Metro
Area.
- Executive Chairman of UTC will be the Chief Executive officer of
Raytheon for a period of two years following fulfillment of the
merger.
- Chief Executive Officer of UTC will be the same person who
serve as Chief Executive Officer of UTC before the effective
time.
- The other officers of UTC must be agreed before the Effective
Time come upon. Both parties must cooperate under the
principle of good faith to choose these officers.
- Board of Directors: 15 total directors; 8 from United
Technologies and 7 from Raytheon; the lead director will be
from Raytheon.
- Is fundamental to clarify governance matters because when
the new company that results from this merger comes into
operation, it must be clear who is in charge, how decisions will
be made, who is the board of directors and where the
headquarters will be located.
Effect of the Merger on the Capital Stock of
Raytheon; Exchange of Certificates
- The exchange ratio is 2.3348 for shares of Raytheon common stocks. Each share of the common stocks of Raytheon is
converted into the right to receive 2.3348. The aforementioned common stocks of Raytheon will no longer exist when the
effective time comes. The only right the shareholders of Raytheon will have with respect to the shares of the common stock
will be the right to receive 2.3348
- The Effect of the merger: change in control.
- The function of the exchange agent will be to sale the excess shares on the NYSE
- A Certificate given to the holder will represent the shares of UTC common stock he will entitle. A letter of transmittal and a
set of instructions must be issued by the UTC exchange agent. These must include the number of shares of UTC common
stock that will be transmitted, any other payable dividends or distributions and cash interest of the fractional shares of UTC
common stock.
- Exchange procedures: to obtain shares of UTC common stock, other dividends or cash in lieu of fractional shares the
pursuant must present the Certificate + Letter of Transmittal and the other documents enlisted in the instructions.
- The shares of UTC common stock that have been converted to acquire the Certificate (for the exchange procedure) are now
fully issued
- Importance → The result of the merger will be a change in control. Raytheon will be the survival company and the shares
of this company common stock will be subject to a specific procedure. This process is specified in these provisions. Also,
the importance of the Certificate and the Exchange Ratio at the time of the Exchange is clarify in these provisions.
Specific function of Representations and Warrants
- Raytheon and UTC are legally organized companies that have the power to enter this agreement. Can consummate the
transactions contemplated in this agreement
- No governmental approval is needed except the one related with except the ones related with the antitrust laws
- The capital structure of the companies is clarify in this provision specifying the measurement date, the Raytheon and UTC
common stock and the preferred stock
- The business of Raytheon and UTC have been conducted in the ordinary course of business
- Compliance with the applicable laws→ Raytheon and UTC hold all permits, licenses and registrations needed to undergo the
business
- System of control to assure compliance with anti-corruption law
- Fair exchange ratio from a financial point of view→ Intended tax free treatment (the transaction)
- Not expectations of Material Adverse effects
- Majority is required in regard to shareholder approval of the merge in respect to both companies
- Merger sub (a-30)
- Was formed only for the purpose of entering into the transaction to which this agreement refers
- Legal treatment: subsidiary of UTC
- No other business. Function: execution of this agreement with Raytheon
- This article is important because it serves as a risk shifting mechanism in case either Raytheon or UTC don’t comply with
their obligations. The indemnification rights the parties have will work together with the Representation and Warranties in
order to get a fair compensation derived from unfulfillment of obligations. The provisions refer to the company’s quality and
its commitment to repay if any term is violated
- The article function is to guarantee quality and reduce the information gap between the companies.
 Covenants;
- All best efforts to conduct business in the ordinary course with respect to the past practice
- Abstain from the following practices:
- Issue sell any shares of its capital stock - Acquire any material assets - Renew or terminate any material contract - Become
liable or responsible for another person
- There’s no right for either company to control or direct operations of the other one prior to the effective time
- Financial cooperation must be assured. Both parties should keep each other and cooperate to implement arrangements in
connection with indentures or other matters related to indebtedness
- Prior to the effective time both parties acknowledge that it might be necessary to make financing transactions (pre-merger
financing transactions)
- No alternative transactions
- A 37 where it explains what an alternative transaction with third parties mean
- The function of the Covenants article is to assure parties will fulfill their obligations in good faith and cooperating with one
another. Best efforts of both parties are assured via this article. They have the obligation to carry out business in the ordinary
course until the merger happens.
- Also, these provisions state the corporate existence of both companies and assure they comply with all applicable laws
- Is important to consider that provisions related to the restrictions on material transactions is fundamental to guarantee that the
merger is not affected with these operations.
Additional Agreements
1. Preparation of the Form S-4 with the Joint Proxy statement included
2. Registration Statement for each of the distributions
3. UTC and Raytheon comply to convene and hold a stockholders meeting
4. Access to information is granted: both companies should give access to information during normal business hours from
the date of the agreement until the effective time comes
5. cooperation between the parties and assurance of best efforts to complete the agreement successfully
6. 6 year prepaid tail policy
7. fees and expenses should be incurred by the party incurring in those fees and expenses
8. Public announcements must be agreed previously by both parties
9. NYSE listing: both companies should use best effort to cause the UTC common stock to be approved for listing
10. best efforts to quality the transaction as tax free
11. Employees_ both parties should treat similarly employees and not discriminate them despite the company they come from
12. Importance of a separation committee to prepare the separation successfully

Function→ Assure that all procedures and agreements are respected and comply. Before the effective time a serie of
conditions must be satisfied. In the additional agreements it is specify the agreements the parties must overcome in
order to successfully merge.
 Termination, Amendment
Conditions Precedent General Provisions
and Waiver
- States all the obligations that parties must 1. Termination 1. Non survival of Representations
fulfilled in order for the merger to happen a. by mutual written consent of and Warranties: limited time →
- stockholder approvals both parties until the effective times come
- HSR act waiting periods b. by either of the parties in 2. definitions
successfully overcome specific cases
a. interpretation matters
- other approvals by government 2. effect of termination
b. scope of each of the
institutions (antitrust laws a. the agreement becomes void
approvals) b. no liability important concepts of the
- registration statement 3. amendment contract
- stock exchange listing (the shares a. at any time before the c. such as
of UTC common stock) stockholder approval of each of - material adverse effect
- IRS ruling the companies - intended tax free treatment
- External Spin off tax opinion 4. extension - waiver - anti corruption law
- Separation and Distributions a. at any time prior to the effective - Raytheon benefit plan
successfully consummated time - taxes
- no additional representations, no
obligations for each of the parties, work in hand risk shifting mechanism. Stipulates the ways
third party beneficiaries
with the additional agreements. This two of termination so the parties know exactly in
- governing law: laws of the state of
provisions are important because together they set which events it is possible to abort the merge.
a road map for the companies to act before the Also it gives a viable solution if the parties Delaware
merge believe there is provisions or statements that
must be corrected or changed before the
stockholders approval (amendments).
How the provisions work together
Example 1
Article 1 lay out what must
be understood for effective
time, this concept is
important since it is from
that moment when the
merger began to have
effects. Likewise, in the
article of Representation
and Warranties the parties
commit to act under the
principle of good faith and
also affirm that they
comply with the legal
regulations applicable to
the transaction.
Example 2
In the General Provisions it is
specify the meaning of anti
Example 3
corruption laws this is related to
The HSR act provision in
the provisions related to the
article 7 is related to the
Effect of the Merger on the
importance of regulatory
Capital Stock of Raytheon;
approvals that the
Exchange of Certificates.
parties must wait for to
Considering a change in control
happen in order for the
will happen, the understanding
transaction to take
of this laws is fundamental so
place. Also related to
that the parties do not fall into
Representations and
the prohibition of generating a
Warranties since in this
monopoly and affecting the
set of provisions it is
competition because if so, the
specified that the parts
deal would fall.
of good faith will comply
with the law in the stage
prior to the transaction
happening.
 Representations Covenants Conditions Termination, General
and Warranties Precedent Amendment and Provisions
Combination of
Waiver
buyer seller Combination of
Seller Favorable Buyer Favorable
favorable buyer seller
Each party Combination of
obligations to favorable
more obligations fall Cooperate in good buyer seller
effectuate the favorable
on UTC because it faith to provide Definitions that
merger are the
information give guidelines to
has to comply with same. Example
Stakeholders the parts and
giving legal existence
approval, HSR underlies the
to merger sub scope of
ACT compliance
concepts

However more
Example no right to Example: Material
liabilities for UTC Example mutual
control or direct Adverse Effect,
because it must consent for
operations of the Anti-Corruption
Example Merger Sub comply with the termination A55
other company Law, Non Survival
provision (pp. A30) separation and and also no
(pp.A36). No of R&W
distributions and liability in case of
alternative
stock exchange termination A56
transactions
listings
(A37-40)
 Merits and distinguishing features of the United
Technologies’ Merger with Raytheon
- The fact that the same engineering, manufacturing and support capabilities are required to support
commercial and defense businesses show how the complementary capabilities and technology exchange
expected by the merge of UTC and Raytheon.
- The separation and distributions that must be made by UTC are a condition for the completion of the merger.
- As a result of the distributions, it is expected that the market price of the UTC common stock will
decrease because the market price will no longer include the value of the Otis business or the Carrier
business.
- the number of shares of UTC common stock that holders of Raytheon common stock will receive is fixe
- however
- Any fluctuation in the trading price of shares of UTC common stock after the date of this joint proxy
statement will change the market value of the shares of UTC common stock that holders of Raytheon
common stock will receive
- The complementary cultures of UTC and Raytheon, including a strong culture based on performance,
collaboration, innovation will guarantee synergies between the companies
- The expectation that the combined company
- be well capitalized
- will generate a solid free cash flow
- will have a solid balance that will support continuous investment
- will have a solid balance that will facilitate the return of significant amounts of capital to its
shareholders.
- The expected tax-free treatment of the merger for purposes of the United States federal income tax for
Raytheon shareholders
 Strategic considerations
Financial Point of View Strategic Point of View

- Strong cash flow generation - Complementary technologies

- Value creation through cost synergies
- Organic growth
- Cost savings and synergies → savings in
operating costs expected after the merger
- Return capital to stakeholders
- All stock transaction = merger of equals
- Classifies as a Tax-free transaction
- Gain market share to increase revenue
- Reduce costs by unifying headquartersà reduce
unnecessary costs to assure stability and long-term
viability
- Revenue synergies through specific technologies
and capabilities promising growth opportunities
- Diversified product portfolio. Broad and balanced
portfolio
- Promoting cost effective solutions
- Merge innovation teams and experience
management teams
- Diversification in the aerospace and defense
industry
- Capabilities of both companies are complementary
- Focusing on the customer needs
- Technological opportunities
- Operational efficiencies
- Leading aerospace and defense company
- Enhance product offering for customers
- Inorganic growth: expand and increase product
portfolio
Present: reported prices
and trading activity External: publicly
available financial
Present: Compared the information
financial performance with
respect to competitors Internal: available
05 financial information
Present: Reviewed the
Merger Agreement
Information Long Term: financial
01 04 projections
used to
Internally: Participated in conclude
certain discussions and Exchange Evaluate strategic, financial
negotiations among Ratio is fair and operational benefits
representatives prior to the Merger
02 03 Long term: Impact of the
Merger on
Internally: Discussed with a. earnings per share
managements of UTC and Opinion by → Morgan Stanley + Evercore b. cash flow
Raytheon operational and Group + Citigroup + RBC Capital Markets c. consolidated
strategic matters capitalization
Their opinion is limited to the fairness, d. financial ratios
from a financial point of view
 Market Response
A bet for innovation → i) reduction of costs ii) new job opportunities iii) gaining competitive advantages with respect to the global
market→ two complementary companies can contribute essential capacities to each other, the strengths of one are the weaknesses of
the other.

Working together can One of the main objectives of Gain a competitive In the long term, the
make the aerospace this merger is cost reduction advantage in the global proposed merger could
industry in the United having said that, horizontal market and also through lead to further
States stronger and with mergers help reduce excess innovation be the first to restructuring within the
the potential to compete capacity and contribute to generate new products defense industry that
globally. economies of scale within this industry might have repercussions
for taxpayers.
 DEFENSE PRIORITY VS COMMERCIAL AEROSPACE PRIORITY
UTC RAYTHEON
Regulatory Impact
Section 7 of the Clayton Act: totally or partially prohibits
the acquisition by a commercial company of the shares
or assets of another company in the same country if; the
effect of such acquisitions will reduce competition
substantially or tend to create a monopoly

Merger between such powerful companies, it should be

evaluated if the niche market of this companies is the
same and therefore their merger would generate a
monopoly or, if on the contrary, the niche market is
different, and this merger will be a way to boost
technology and innovation in the United States.

Not competitive but complementary→ less than 1% of our

revenue in terms of overlap