Melbourne-based Harris Corporation and New York-based L3 Technologies announced Sunday afternoon they have agreed to a transformational all-stock merger of equals, in what is the largest merger in defense industry history.
The combined company, L3 Harris Technologies, Inc., will be the 6th 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. For calendar year 2018, the combined company is expected to generate net revenue of approximately $16 billion in annual revenues and 48,000 employees worldwide. The company would be ranked about 180 on the latest Fortune 500 list.
The company will be headquartered in Melbourne and become the 8th largest company based in Florida, according to Fortune 500 rankings. It creates opportunities for growth within the region and expanding career opportunities for Harris' existing 6,600 employees in Melbourne, company spokesman Jim Burke states in a news release.
Harris Chairman, President and Chief Executive Officer William M. Brown said, “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. 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. ..."
The company will be led by Harris' Brown, who will serve as chairman and CEO, while current L3 Technologies CEO Christopher E. Kubasik will serve as vice chairman, president and COO.
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.
Here are other notable elements of the merger:
- Combination creates a global defense technology leader with a broad portfolio of capabilities and increased scale to address evolving customer needs;
- Complementary businesses with a shared culture of innovation and operational excellence to accelerate growth and improve margins;
- $500 million of annual gross pre-tax cost synergies in year 3; $300 million net of savings returned to customers; and
- Cash EPS accretive in first full year post close; targeting $3 billion in free cash flow by year 3.
