United Technologies Corp and Raytheon on Sunday agreed to an all-share merger of equals that will create a new aerospace and defence giant and challenge the industry's long-standing pecking order.

Under the terms of the deal, UTC will merge its aerospace business with Raytheon to form a $120 billion powerhouse. It will be a critical supplier of military equipment and rank as the second-largest defence contractor by revenue, after Lockheed Martin but ahead of Boeing.

On completion of the deal, UTC shareholders will control 57 per cent of the new group while the remainder will be owned by Raytheon shareholders,

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