Harris Corporation, L3 Technologies Combine in Merger to Create Global Defense Technology Leader

By  //  October 15, 2018

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combined company will be the sixth largest defense company in the U.S.

Harris Corporation and L3 Technologies, Inc. have agreed to combine in an all-stock merger of equals to create a global defense technology leader focused on developing differentiated and mission-critical solutions for customers around the world. “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 Chief Executive Officer, William M. Brown, pictured above.

BREVARD COUNTY, FLORIDA – Harris Corporation and L3 Technologies, Inc. have agreed to combine in an all-stock merger of equals to create a global defense technology leader focused on developing differentiated and mission-critical solutions for customers around the world.

The combined company, L3 Harris Technologies, Inc., will be the sixth largest defense company in the U.S. and a top 10 defense company globally, with approximately 48,000 employees and customers in over 100 countries.

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

L3 Harris Technologies will be headquartered in Melbourne, Florida and led by a highly experienced and proven leadership team that reflects the strengths and capabilities of both companies and will share equally in the integration process.

Under the terms of the merger agreement, which was 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 approximately 54 percent and L3 shareholders will own approximately 46 percent of the combined company on a fully diluted basis.

For the calendar year 2018, the combined company is expected to generate net revenue of approximately $16 billion, EBIT of $2.4 billion and free cash flow of $1.9 billion.

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“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 Chief Executive Officer, 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 3.”

The combined company plans to accelerate investment in select technologies to expand leadership in key strategic domains including national security.

“This merger creates greater benefits and growth opportunities than either company could have achieved alone,” said L3 Chairman, President and Chief Executive Officer, Christopher E. Kubasik.

“This merger creates greater benefits and growth opportunities than either company could have achieved alone,” said L3 Chairman, President and Chief Executive Officer, Christopher E. Kubasik.

“The companies were on similar growth trajectories and this combination accelerates the journey to becoming a more agile, integrated and innovative non-traditional 6th Prime focused on investing in important, next-generation technologies. L3 Harris Technologies will possess a wealth of technologies and a talented and engaged workforce. By unleashing this potential, we will strengthen our core franchises, expand into new and adjacent markets and enhance our global presence.”

Strategic Benefits of the Merger

The combined portfolio brings depth and balance of relationships across a wide range of customers, in both the U.S. and international markets.

Increased scale will enable the combined company to be more cost competitive, expand capabilities to provide end-to-end solutions across multiple domains of air, sea, land, space and cyber, enhance leadership in RF and spectrum technologies and establish a leading platform-agnostic supplier and integrator.

The combination is expected to generate approximately $500 million of annual gross pre-tax cost synergies, or $300 million net of savings returned to customers, in year 3.

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 approximately $450 million cash to achieve the synergies over the next 3 years.

Governance and Leadership

The combined company’s Board of Directors will have 12 members, consisting of six directors from each company.

Brown will serve as chairman and chief executive officer and Kubasik will serve as vice chairman, president and chief operating officer for the first two years following the closing of the transaction.

For the third year, Brown will transition to executive chairman and  Kubasik to chief executive officer, after which Kubasik will become chairman and chief executive officer.

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

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