Harris and L3 Sign Merger Agreement to Become the Sixth Largest US Defense Subcontractor

(Reuters) – Harris Corporation, supplier of military communications equipmentHRS.N) and L3 Technologies (LLL.N) announced Sunday the merger of all its actions to create the sixth largest US defense contractor with a market value of $ 34 billion.

US President Donald Trump's Rising Spending on Defense and Republican-Led Congress Urges Entrepreneurs to Merge to Provide More Ways to Bid on Larger Projects, From Systems Upgrading obsolete computers to space exploration.

In August, Trump signed a defense policy bill authorizing $ 639 billion in military spending, such as the purchase of weapons, ships, aircraft and troop payments.

"We are in an environment where the economy is strong enough, we know that defense spending will increase, the (federal) budget for 2019 is up 3% over 2018 and 2018 up from 9 to 10% from the previous year, "William, CEO of Harris Brown said in an interview.

"I think there is a growing need for additional investments and end-to-end solutions," added Mr. Brown.

The transaction unveiled on Sunday values ​​L3 at $ 15.7 billion, slightly above its market capitalization of $ 15.3 billion at the end of the trading session on Friday. Harris has a market capitalization of $ 18.2 billion.

L3 shareholders will receive 1.3 Harris common shares for each of their shares. As a result, Harris shareholders will own approximately 54% of the amalgamated company, with the remaining shares owned by L3 shareholders.

The merged company, L3 Harris Technologies Inc., will have approximately 48,000 employees and customers in more than 100 countries, the two companies announced.

The board of directors of the new company will have 12 members, ie six directors from each company. Brown will assume the role of President and CEO, and L3 CEO Christopher Kubasik will serve as Vice President, President and Chief Operating Officer for the first two years following the completion of the transaction, announced companies. In the third year, Brown will take over the presidency and Kubasik will become the CEO.

"The aerospace and defense industry continues to see a lot of changes over the past year and many people have long believed that this combination made sense and we worked hard to make it happen." Kubasik said in an interview.

A series of transactions took place in the area. In June, US defense subcontractor Northrop Grumman Corp. (NOC.N) has acquired Orbital ATK for approximately $ 7.8 billion, which has allowed it to have better access to lucrative government contracts and to expand its arsenal of missile defense systems and space rockets.

In April, the weapons manufacturer General Dynamics Corp. (GD.N) purchased CSRA Inc. for $ 9.7 billion to expand its government services business, after CACI International Inc (CACI.N) withdrew its bid for CSRA following a bidding war.

Morgan Stanley (MS.N) acts as financial advisor to Harris and Sullivan & Cromwell LLP as lead counsel, Paul, Weiss, Rifkind, Wharton & Garrison LLP as special counsel to the Board of Directors. Goldman Sachs Group Inc (GS.N) acts as financial advisor to L3 and Simpson Thacher & Bartlett LLP as legal counsel.