Harris Announces All-Stock Merger with L3 Technologies
Monday, October 15, 2018 | Comments

Harris and L3 Technologies agreed to combine in an all-stock merger of equals to create the sixth-largest global defense technology provider.

Under the terms of the agreement, unanimously approved by the boards of directors of both companies, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris common stock for each share of L3 common stock, consistent with the 60-trading day average exchange ratio of the two companies. Upon completion of the merger, Harris shareholders will own about 54 percent and L3 shareholders will own about 46 percent of the combined company.

The combined company, called L3 Harris Technologies, will have about 48,000 employees and customers in more than 100 countries. For calendar year 2018, the combined company is expected to generate net revenue of $16 billion and free cash flow of $1.9 billion.

“This transaction extends our position as a premier global defense technology company that unlocks additional growth opportunities and generates value for our customers, employees and shareholders,” said Harris Chairman, President and CEO William M. Brown. “Combining our complementary franchises and extensive technology portfolios will enable us to accelerate innovation to better serve our customers, deliver significant operating synergies and produce strong free cash flow, which we will deploy to drive shareholder value. Integration planning is already underway, and from our extensive experience with integration, we are confident in our ability to realize $500 million of annual gross cost synergies and $3 billion of free cash flow by year three.”

The combined company will be focused on developing differentiated and mission-critical solutions for customers around the world and plans to accelerate investment in select technologies to expand leadership in key strategic domains including national security.

The combination is expected to generate about $500 million of annual gross pre-tax cost synergies, or $300 million net of savings returned to customers, in year three. The savings will come from reducing direct and indirect spend, rationalizing footprint, consolidating corporate and segment headquarters, establishing a common shared services platform for IT and finance, and reducing other overhead costs. The company is expected to invest about $450 million cash to achieve the synergies during the next three years.

L3 Harris Technologies will be headquartered in Melbourne, Florida, and the combined company’s board of directors will have 12 members, consisting of six directors from each company. Brown will serve as chairman and CEO, and Christopher E. Kubasik will serve as vice chairman, president and chief operating officer (COO) for the first two years following the closing of the transaction. For the third year, Brown will transition to executive chairman and Kubasik to CEO, after which Mr. Kubasik will become chairman and chief executive officer.

Additional senior leadership positions for L3 Harris Technologies will be determined at a later date.

The merger is expected to close in mid-calendar year 2019, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.

Harris also reported fiscal 2019 first quarter revenue of $1.5 billion, up 9 percent compared with the prior year. Net income increased 34 percent to $213 million.

"We are off to a strong start in fiscal 2019 with solid first quarter results and the highest revenue and earnings per share (EPS) growth we have achieved in eight years," said Brown. “We also increased our dividend by 20 percent and returned $282 million to shareholders through dividends and share repurchases. These results, combined with the recent approval of a well-funded budget, give us confidence to increase fiscal 2019 EPS guidance.”

Communications systems revenue increased 16 percent from double-digit growth in all three businesses: tactical communications, public safety and night vision. Operating income increased 22 percent.

Public safety received more than $120 million in awards as it continued to strengthen its position in utilities and state, local and federal agencies, a statement said. Awards included more than $40 million from Nevada Energy and Washoe County, Nevada, to design and build a statewide shared radio system and $15 million from the U.S. Army under the previously announced $495 million indefinite delivery, indefinite quantity (IDIQ) contract.

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Comments
On 10/17/18, greg said:
Now I have to go look into who L3 actually is. Why not tell us in a sentence what they do Mother of God.

Editor's Note: L3 Technologies is a top 10 defense contractor that supplies ISR, communications and electronic systems.


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