The European Commission has given its approval to the proposed acquisition of defence contractor and arms manufacturer Raytheon by United Technologies Corporation (UTC). The transaction would combine UTC's aerospace businesses and Raytheon's defence business. Both companies are worldwide suppliers of military systems to aircraft and guided munitions manufacturers, as well as armed forces.
Credit: Raytheon Technologies
Following the proposal of the acquisition, the Commission began investigating what the impact of the deal would be. There were initial concerns that the transaction would have reduced competition in the markets for airborne radios and military GPS receivers.
The results of the Commission's investigation found that, with respect to military airborne radios, UTC and Raytheon are two major suppliers of these systems worldwide and, in particular, the only two real options currently available to US military aircraft manufacturers. EEA armed forces procure a variety of military aircraft from US manufacturers, therefore the Commission was concerned that the concentration would result in harm to EEA armed forces, including higher prices.
Concerning military GPS receivers, UTC and Raytheon are two of the very few suppliers of this core military GPS technology worldwide, including in the EEA, which in turn constitutes a critical input for a broad range of military systems. Therefore, the merged entity would have faced very limited competition from alternative suppliers following the transaction.
The conclusion that the Commission reached was that vertical links between the two defence giants did not harm competition because the resulting merged entity would have neither the incentive nor the ability to restrict competitors' access to essential input or a customer base.
The investigation also looked at whether the proposed merged entity would have the ability to shut out competitors through the use of practices such as bundling, but found that there would be no incentive to do so, and nor would the company have the ability.
The two defence companies, in a bid to allay the Commission's concerns offered to divest UTC's entire military GPS receiver and anti-jamming business, which is based in Cedar Rapids and Coralville, Iowa, United States, as well as Raytheon's entire military airborne radios business, based in Fort Wayne, Indiana, United States.
The intention on the part of UTC and Raytheon is to sell the divested businesses to BAE Systems, removing the overlap.
The Commission's final approval is still dependent on the two defence companies fulfilling these commitments.
The investigation saw the European Commission work closely with the Department of Justice in the US, where the companies are both headquartered, as well as Canada's Competition Bureau.
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