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Harris Corp. and L3 Technologies Inc. announced on Sunday their intention to join the largest merger ever in the defense sector, in response to the Pentagon's efforts to get companies to increase investment and accelerate development of their weapons.
The expanded company would have annual sales of about $ 16 billion this year and employ 48,000 people, ranking sixth among US defense companies, in terms of revenue, as Pentagon spending increases after five years of business. budget cuts.
The deal, announced for the first time by the Wall Street Journal on Saturday, would bring together two companies with a combined market value of about $ 33.5 billion.
"It is absolutely necessary to invest more, which requires scale," said Harris President and CEO Bill Brown in an interview. He will retain the roles for two years in the larger company, under the name of L3 Harris Technologies Inc. Mr. Brown has propelled the company to the forefront of entrepreneurs in 2015 with the acquisition of Exelis Inc. amounting to $ 4.6 billion.
L3 CEO Chris Kubasik previously pledged to create a sixth "lead" subcontractor in the defense sector alongside Lockheed Martin Corp., Boeing Co., Raytheon Co. Northrop Grumman Corp. and General Dynamics Corp.
Mr. Kubasik said in an interview that the larger company aims to keep the spirit of a small business. "The customer environment is such that he looks for quick fixes," he said.
Mr. Kubasik would assume the role of CEO after two years and would become executive chairman the fourth year after the close, with the resignation of Mr. Brown.
The merged company would have a range of products ranging from military radios and highly secretive space equipment to air traffic control systems, with little overlap.
The companies have been in talks since the beginning of the year, accelerating over the summer. Under the terms, L3 shareholders will receive 1.3 Harris shares for every share they own. This would give Harris's shareholders 54% of a company whose combined market value would be around $ 34 billion, based on Friday's closing prices.
The two companies said the expanded entity would generate $ 3 billion in free cash flow over the next three years as well as cost savings of $ 500 million, of which $ 200 million would be returned to customers. They also allocated $ 2 billion to share buybacks the year after closing.
Based in Melbourne, Florida – which would also be the headquarters of the merged company – Harris is a provider of communication and electronics systems for military and civilian use. Its systems are used for battlefield communications as well as first responders and for GPS weather monitoring and air traffic control.
Harris, a printing press company founded more than 100 years ago, has an annual business turnover of more than $ 6 billion and a market value of $ 18.2 billion. Its shares fell sharply last week, as did those of L3, following market turmoil sparked by concerns over rising interest rates. Both stocks have increased steadily in recent years.
New York-based L3, worth $ 15.3 billion, also provides communications and electronics equipment to the military, homeland security and civil aviation sectors. The company manufactures aerospace and communications systems, sensors and other electronic products for the US Army, Navy and other customers. Its systems are used in pilot training, aviation safety and for applications such as night vision.
The increase in national military spending as well as rising defense budgets elsewhere in the world and the surge in sales of commercial line jets fueled a wave of negotiations in the aerospace sectors and defense.
The trend is also towards consolidation: Aerospace and defense contractors are seeking to increase production in-house to allow them to better control the supply chain and derive additional benefit from repair work, while departments are providing larger IT contracts.
Last year, United Technologies Corp. has agreed to acquire Rockwell Collins Inc. for $ 23 billion, under a contract that would create one of the world's largest aircraft equipment manufacturers. The agreement has not yet received the approval of the regulators and has not yet been finalized. A year earlier, Rockwell had agreed to buy B / E Aerospace Inc. for about $ 6 billion.
Earlier this year, Northrop Grumman entered into an agreement to purchase the Orbital ATK Inc. defense contractor for nearly $ 8 billion. And this week, TransDigm Group Inc. has agreed to buy the jet component manufacturer Esterline Technologies Corp. at a price of $ 4 billion, including debt, at a significant premium to the company's market.
In April, General Dynamics, manufacturer of Abrams tanks and Gulfstream business jets, bought CSRA Inc. for nearly $ 7 billion after winning the battle for the takeover of the federal IT provider.
Email Dana Mattioli at [email protected], Dana Cimilluca at [email protected] and Doug Cameron at [email protected]
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