Activist investor Bill Ackman, whose Pershing Square hedge fund owns more than $ 700 million in United Technologies, has spoken out against the planned merger of the aerospace company and defense company Raytheon, stating that the deal is "pointless".
In an email to Gregory Hayes, UTC General Manager, Ackman referred to Raytheon as "a large, low quality company," saying he "could not understand the strategic logic behind such a transaction."
In early 2018, Pershing Square built its 0.7 percent stake in UTC as Hayes worked on a large industrial conglomerate restructuring plan. At the end of last year, UTC announced its intention to outsource the Otis Elevator and Carrier Building Systems business to separately traded companies – a move supported by Mr Ackman.
The agreement to merge the remaining aerospace business with Raytheon as part of a merger would create an aerospace and defense powerhouse this year with estimated total revenues of $ 74 billion.
UTC shares have fallen 7 percent to $ 123 in the two trading sessions since the announcement of the merger. Raytheon's share price fell 4.5 percent to $ 177.
Mr Ackman expressed his rejection of the merger over the weekend after news of the contract negotiations had leaked out and before the agreement was announced. "I hope this is just a fake," he wrote in the email, "because it does not match the Greg Hayes we know."
The activist had betted that the UTC stock price would rise significantly as a result of the three-way split, and predicts he could reach as much as $ 200 by mid-2020. The Raytheon deal messes up its calculations.
"We are extremely concerned that such a transaction will significantly impact the business quality of United Technologies in the aerospace industry." trade at an enormous discount to the intrinsic value ".
While the deal makes perfect sense to Raytheon shareholders, Ackman wrote that it would be "catastrophic" for UTC.
Mr. Hayes and his colleague Raytheon, Tom Kennedy, described the deal as "win-win" for the companies and their customers, providing unprecedented technology for commercial and military markets and leveraging pricing.
UTC said in a statement on Tuesday after the Wall Street Journal reported for the first time on Mr. Ackman's opposition that he was convinced of the merits of the transaction, "and the value it brings them and the company."