News of mergers and acquisitions normally draws in significant attention, especially when the value of the combined company exceeds $100B, such is the case for the proposed merger of United Technologies (UTX) and Raytheon (RTN). Deals of this size always face significant scrutiny by the government’s anti-trust regulators as well as big-name investors who see few benefits. Interestingly in this case the merger has caught the attention of the United States Air Force, with a senior member responsible for equipment acquisitions expressing concerns that the defense industry’s consolidation poses a national security concern. I’ll provide my thoughts on topic as well as brief background information in this article.

Background Situation

Following the collapse of the Soviet Union in 1991 and hence the end of the Cold War, the defense spending of the United States was significantly reduced with many large programs scaled back, such as the B2 Stealth Bomber. This naturally caused quite a degree of turmoil for the defense industry which was suddenly presented with a smaller pie that also had less slices, figuratively speaking. One of the methods to deal with this peaceful yet financially undesirable outcome was to restructure through accelerating the rate of mergers and acquisitions that the industry had been going through since the end of World War Two.

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