Raytheon/UTC merger process presents attractive opportunities Two high-quality businesses coming to market as result of the Raytheon-UTC merger regulatory process. Both businesses to sit within Electronic Systems sector (c.32% of Group profit), where cost and revenue synergies can build. Combined consideration of $2.2bn (c.£1.7bn), funded by existing cash and new debt. On existing estimates, we have net debt/EBITDA of <0.5x in 2019E and a net cash position by next year. As a result of both acquisitions completing by c.mid-2020, resulting net debt/EBITDA of c.1x appears sensible. At first glance, we would expect adj. EBIT consensus upgrades of c.4% in the first full year. Collins Aerospace’s Military GPS business: 5.8x EV/Sales, 12x EV/EBITDA The GPS business provides military GPS receivers and has been a pioneer in military GPS markets for over 40 years. It is being acquired for $1.9bn / c.£2.5bn, representing 5.8x EV/sales and 17x EV/EBITDA on 2019E, or 12x after an expected tax benefit of c.$365m / c.£280m. ROIC > WACC expected in 3rd full year post completion. An expected revenue CAGR of 10%+ over the next four years is supported by Congressionally-mandated upgrades to existing systems, to include the next-generation M-Code signal, which improves anti-jamming and secure access of military GPS signals. Raytheon’s Airborne Tactical Radios: 2.2x EV/Sales The Radio business provides mission-critical airborne tactical radio solutions, with an installed base of >70,000 aircraft. It is being acquired for $275m / c.£212m, representing 2.2x EV/sales (2019E), with an expected tax benefit of c.$50m / £38.4m. The business appears to have good growth potential from the US DoD modernisation drive – we note that DoD modernisation account outlays grew 28% YoY in December (+18% YoY trailing 12m). Margins, earnings and cash expected to be immediately accretive and ROIC > WACC expected in 1st full year. Conference call at 9am, WEBEX access via www.investors.baesystems.com