Tech merger between Harris and L3 to see new power in global defence market

The combined company, L3 Harris Technologies, will be the sixth largest defence company in the US and a top 10 defence company globally, with about 48,000 employees and customers in over 100 countries. For calendar year 2018, the combined company is expected to generate net revenue of about US$16 billion, EBIT of US$2.4 billion and free cash flow of US$1.9 billion.

L3 shareholders are set to 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 per cent and L3 shareholders will own about 46 per cent of the combined company on a fully diluted basis.

Harris chairman, president and chief executive William Brown said, "This transaction extends our position as a premier global defence technology company that unlocks additional growth opportunities and generates value for our customers, employees and shareholders.

"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 realise $500 million of annual gross cost synergies and US$3 billion of free cash flow by year three."

L3 chairman, president and CEO, Christopher Kubasik said, "This merger creates greater benefits and growth opportunities than either company could have achieved alone. The companies were on similar growth trajectories and this combination accelerates the journey to becoming a more agile, integrated and innovative non-traditional sixth 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."

It is expected that the merger will provide a number of strategic benefits, including: 

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• Increased scale with a well-balanced portfolio of complementary franchises: The combined portfolio brings depth and balance of relationships across a wide range of customers, in both the US 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. 
• Shared culture of innovation and operating philosophy creates stronger platform to drive growth: Both L3 and Harris are technology driven organisations with significant R&D investment and a combined workforce of approximately 22,500 engineers and scientists. The combined company plans to accelerate investment in select technologies to expand leadership in key strategic domains including national security. By leveraging a common operating philosophy of continuous improvement, L3 Harris Technologies will continue to drive operating margin improvement.
• Meaningful value creation opportunity: The combination is expected to generate approximately US$500 million of annual gross pre-tax cost synergies, or US$300 million net of savings returned to customers, in year three. The savings will come from reducing direct and indirect spend, rationalising 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 US$450 million cash to achieve the synergies over the next three years.
• Governance and leadership: The combined company’s board will have 12 members, consisting of six directors from each company. Brown will serve as chairman and CEO, and Christopher 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 CEO, after which Kubasik will become chairman and CEO.

Harris Corporation is a technology innovator, solving customers’ mission-critical challenges by providing solutions that connect, inform and protect. Harris supports government and commercial customers in more than 100 countries and has approximately $6 billion in annual revenue.

L3 Technologies is an innovator and provider of global ISR, communications and electronic systems for military, homeland security and commercial aviation customers. With headquarters in New York City and approximately 31,000 employees worldwide, L3 Technologies develops advanced defence technologies and commercial solutions in pilot training, aviation security, night vision and EO/IR, weapons, maritime systems and space.