Stocks continued last week's rally on Monday, as investors were encouraged that tariffs on Mexico are off the table. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) posted gains of less than 0.5%.
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Merger to create a defense and aerospace giant
United Technologies and Raytheon announced on Sunday that the two companies will merge in an all-stock deal, causing shares of Raytheon to rise 0.7% and those of United Technologies to fall 3.1%. Raytheon shareholders will receive 2.3348 shares of the combined company, to be called Raytheon Technologies, for every Raytheon share they own.
The deal will bring together Raytheon's missile, air defense, and electronic warfare capabilities with United Technologies' Pratt and Whitney engines, avionics, and aerospace strengths. The new company will have combined pro forma 2019 sales of $74 billion and free cash flow of about $6 billion. Management expects to cut $1 billion in annual expenses and grow free cash flow to $8 billion by 2021.
United Technologies will have a lot of change happening simultaneously, as the company is still integrating its acquisition of Rockwell Collins while working on the divestiture of its Otis and Carrier businesses. But Raytheon is coming off a strong year, and its complementary strengths in defense could make the deal pay off with diversification and scale, despite the complexity of the transition in the short term.
Salesforce buys Tableau Software
Shares of Tableau Software soared 33.7% after software-as-a-service giant Salesforce announced it's buying the company in an all-stock deal worth about $15 billion. Salesforce is exchanging 1.103 shares of its stock, which fell 5.3% today on the news, for each share of Tableau.
Tableau Software specializes in data analytics, tapping into various sources of data across an organization, allowing for multiple ways of analyzing and presenting it visually. Salesforce already has Einstein, analytics for sales and marketing based on artificial intelligence, but sees the combination of Einstein and Tableau delivering a more powerful analytic and visualization capability.
The deal is expected to close around Oct. 1, and while Salesforce expects the move to increase fiscal 2020 revenue by $350 million to $400 million, Tableau operates at a loss, so the acquisition will ding profits in the short term. Salesforce anticipates the deal will take $0.37 to $0.39 off 2020 non-GAAP EPS, bringing it to $2.51 to $2.53.