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DealBook Briefing: Meet the New Defense Industry Giant – The New York Times


The combined company will make both Patriot missiles, shown, and Pratt & Whitney jet engines.CreditCreditSebastian Apel/U.S. Department of Defense, via Associated Press

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The proposed merger of United Technologies’ aerospace division and Raytheon Technologies creates a big new maker of aircraft engines, jets and missiles, Michael de la Merced of the NYT reports. And it could spur more mergers in the sector.

Together, the two would have an estimated $74 billion in sales, and would produce F-35 fighter jets and Pratt & Whitney jet engines, which are used in Airbus airliners. United Technologies’ aerospace division and Raytheon would merge in a share swap, with the combined company being called Raytheon Technologies.

Work on the deal began after United Technologies announced last November that it would split into three publicly traded companies: its aerospace division; Otis, which makes elevators; and Carrier, which makes heating and cooling equipment. Raytheon’s C.E.O. reached out to his counterpart at United Technologies late in the year, saying the two should unite.

It’s the latest example of consolidation within the military and aerospace industries, creating a new colossus built to thrive in boom times and weather leaner ones. If military spending slows down, as analysts expect in the coming years, the bigger scale and cost savings of the deal could help buoy the combined company.

Analysts say the deal shouldn’t face antitrust problems because United Technologies and Raytheon have little overlap in their businesses.

But it could force more consolidation among military contractors. The Pentagon would most likely oppose more deals involving the big five players — Lockheed Martin, Boeing, General Dynamics, Northrop Grumman as well as Raytheon — but its demands on contractors to cut costs could force other companies to look for Raytheon-type combinations to survive.

President Trump may have called off his plan to impose tariffs on Mexico after it agreed to clamp down on migrants seeking entry into the U.S. But his tendency to use trade as a blunt weapon on friend and foe alike will unnerve allies at home and abroad for a while.

Mexico won a reprieve by mostly reaffirming existing commitments on immigration and pledging to put troops on its southern border. But it refused the Trump administration’s request to accept a “safe third country” treaty, which would have allowed the U.S. to reject asylum-seekers if they had not already sought refuge in Mexico.

The drama was a reminder that for Mr. Trump, tariffs are about politics. The president could revive a trade battle with Mexico if it benefits him electorally. “It’s going to be a long 16 months heading up to November 2020,” Jorge Guajardo, a former Mexican consul to the U.S., told the WSJ.

The administration remained unswayed. Treasury Secretary Steven Mnuchin said over the weekend that China was to blame for the continuing trade war, while Mr. Trump portrayed the tariff fight with Mexico as a big win.

But global finance ministers are worried about the cost of tariffs. At this weekend’s Group of 20 meeting, officials criticized trade tensions for slowing economic growth worldwide. (Bowing to pressure from the U.S., however, their public joint statement didn’t mention “tariffs.”)

Business leaders are becoming more concerned, too. “Maybe folks in the White House don’t know this, but they freaked out a lot of people,” an unnamed trade lawyer told Axios. Some are now considering pushing for limits to the president’s powers over trade, Axios adds.

Jay Powell, the Fed chairmanCreditKiichiro Sato/Associated Press

Friday’s disappointing jobs report has Wall Street wondering when — not if — the central bank will cut rates.

Economic data suggests the Fed will act, and soon:

• The U.S. economy added only about 75,000 jobs last month, and the Labor Department lowered the previous two months’ numbers by 75,000 as well.

• Wages climbed just 3.1 percent over the last year, slowing for the third straight month.

Markets now expect the Fed to cut rates by half a percentage point, probably at the July or September meetings of its board of governors.

In the short run, that could be good for stocks, which rose on Friday after the Labor Department report came out. Low interest rates had underpinned much of the decade-old bull market.

But let’s not forget what rate cuts would really mean. A recession isn’t necessarily likely, but one can’t be ruled out anymore. Justin Lahart offers a reminder in Heard on the Street: “When the Federal Reserve cuts rates, it is usually because something bad is happening.”

The Trump administration’s plan to block government agencies from using Huawei equipment or business partners faced an unusual obstacle: pressure from its own acting budget director to delay the move, Cecilia Kang of the NYT reports.

The budget official, Russell Vought, has asked that any ban not take effect for two years — rather than within one year, as planned — to avoid putting too much of a burden on American companies.

Mr. Vought also sought to delay a rule prohibiting federal grant and loan recipients from using Huawei equipment, which would hit rural telecom providers particularly hard.

The requests were meant to give companies “time to extricate themselves from doing business with Huawei and other Chinese tech companies,” a spokesman for Mr. Vought’s office said in a statement.

His call for a delay underscores how the White House’s fight against Huawei is complicated. Beijing has warned representatives for U.S. tech companies like Microsoft and Dell that they faced dire consequences if they cooperate with the Trump administration’s ban on selling key technologies to Chinese companies, Kate Conger of the NYT reports.

Finance ministers at this weekend’s Group of 20 meeting.CreditToshifumi Kitamura/Agence France-Presse — Getty Images

Finance ministers at the Group of 20 meeting this weekend agreed on the need to create new rules that increase taxes for tech giants like Google and Facebook, Robin Harding of the FT reports.

Companies could owe taxes in countries regardless of their physical presence there, which would be a blow to digital companies. Right now, they can often choose to book their taxes in countries with low rates, since their services cross national boundaries.

“There is no fair taxation of this new economic model,” Bruno Le Maire, France’s finance minister, said at the G-20 meeting in Fukuoka, Japan.

The G-20 decided to act after France and Britain planned new digital taxes that the U.S. — home to most of the tech giants — opposes. The situation “created an urgency for us to deal with this issue,” Treasury Secretary Steven Mnuchin said. Ministers said they want to agree on new rules by next year.

Actually reaching an agreement will be tricky. It’s not clear how to determine what companies would owe in each country, though proposals include reallocating corporate profits to different countries.

But it’s the latest sign of a clampdown on Big Tech. Governments are already considering antitrust reviews of tech giants’ power on both national and state levels.

Days after the proposed merger of Renault and Fiat Chrysler collapsed, the French carmaker is finding itself at odds with its Japanese partner, Nissan — and there’s little sign of that relationship being repaired anytime soon.

Renault plans to block a Nissan bid to overhaul its corporate governance, the FT reports, citing unnamed sources. In a letter sent to Nissan’s board on Saturday, Renault said it would abstain from a vote on the overhaul — and because the French company owns 43 percent of its counterpart, the plan was effectively doomed.

France has sent mixed messages on its willingness to help repair the ties. The French government owns a 15 percent stake in Renault, and has used that to exert control over the carmakers’ alliance. Over the weekend, France’s finance minister, Bruno Le Maire, said he might be willing to reduce that stake if it would strengthen the Renault-Nissan alliance.

But Mr. Le Maire later played down the idea, saying it was a long-term plan, according to Bloomberg. That’s likely to displease Nissan, which wants France to sell off its stake in Renault altogether.

More: A close look at Renault’s chairman, Jean-Dominique Senard, who was an architect of the failed merger. Fiat Chrysler struck a partnership to use the self-driving vehicle technology of Aurora Innovation, a California start-up.

Uber has ousted its chief operating officer, Barney Harford, and its marketing chief, Rebecca Messina.

Sanofi has hired Paul Hudson, a senior executive at Novartis, as its next C.E.O.

Trent Kruse will reportedly step down this week as J.C. Penney’s senior vice president of finance.


• Anadarko’s secret to getting a high takeover bid from Occidental Petroleum, according to a regulatory filing: Keep saying no. (Reuters)

• Activist hedge funds were once shunned in Japan. Now they’re gaining influence at major Japanese companies. (CNBC)

• Barnes & Noble agreed to sell itself to Elliott Management for $638 million, including the assumption of its debt. (NYT)

• A copyright lawsuit by music publishers is clouding the outlook of Peloton, the maker of WiFi-connected exercise bikes, ahead of its I.P.O. (Bloomberg)

• Teneo Holdings, the consultancy and P.R. firm, has reportedly agreed to sell a majority stake in itself to CVC Capital Partners. (WSJ)

Politics and policy

• Business-friendly policies like low taxes and low wages have not saved the South from economic turmoil. (WSJ)

• Liberal advocacy groups have begun identifying young candidates for judicial positions if President Trump isn’t re-elected. (NYT)

• Two senators will try to force a congressional vote against U.S. arms sales to Saudi Arabia. (WSJ)

• The C.E.O.s of major American banks won’t attend a Trump administration meeting in Bahrain meant to kick-start its Middle East peace plan. (CNBC)


• The E.U. plans to warn businesses that it won’t offer them any more help to prepare for a no-deal Brexit. (FT)

• Uncertainty over Brexit appears to have raised investment in continental Europe and lowered it in Britain over the past three years. (FT)


• How YouTube’s algorithmic video recommendations help lead to radicalization. Google’s C.E.O., Sundar Pichai, admitted that the video service has more work to do. (NYT, Axios)

• Google made $4.7 billion from the news industry last year, a new study has found. (NYT)

• Microsoft wants more security researchers to hack its cloud to find weaknesses. (Bloomberg)

• Foxconn, the Taiwanese manufacturing giant, faces two major threats: the U.S. trade war with China, and the decline of the smartphone market. (FT)

• How hackers make money from your stolen medical data. (ZDNet)

Best of the rest

• Why did you get a song download with that T-shirt you ordered? To help the artist climb Billboard’s music charts. (NYT)

• FedEx plans to end its express shipping service for Amazon. (NYT)

• House lawmakers have requested documents from Boeing about a malfunctioning cockpit alert sensor on some 737 Max planes. (Bloomberg)

• The Four Seasons restaurant, which moved to a new location after being forced out of its longtime Midtown Manhattan home, is closing tomorrow. (NYT)

• NASA is opening up the International Space Station to well-heeled tourists. (NYT)

• Wealthy millennials are renting everything. (NYT)

One last thing: On the next episode of The Times’s new TV show, “The Weekly,” find out how the taxi industry’s rigged system left New York City drivers hopeless and in financial ruin. Bankers, brokers and city officials inflated taxi medallion prices and saddled drivers with crippling loans. Watch on FX and Hulu.

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