Tag: l3

Harris Corp. and L3 Technologies Inc. have agreed to a “stock merger of equals” to create a global defense technology leader.

Some 3,600 of Harris’ 17,000 staffers are employed at five locations in Rochester.

“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,” Harris Chairman, President and CEO William Brown said in a statement Sunday. “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.”

Brown said the two companies are working on an integration plan, and “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,” which could be 2021 or 2022.

The combined, $36 billion company will be known as L3 Harris Technologies Inc. and will be the sixth largest defense company in the U.S., as well as a top 10 defense company globally. The company will be headquartered in Melbourne, Fla.

For calendar year 2018, the combined company is expected to generate net revenue of roughly $16 billion, with earnings before taxes of $2.4 billion and free cash flow of $1.9 billion, officials said Sunday.

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.

“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 6th Prime focused on investing in important, next-generation technologies,” L3 Chairman, President and CEO Christopher Kubasik said. “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.”

Brown, during a conference call Monday, noted the two companies have six segments between them with very little overlap; that likely will be reduced to three or four. He also noted that the combined company in the coming months will work to eliminate duplicate corporate costs and trim capital spending of $400 million.

“We’re both on the same page on how to run a business culturally. We have to maintain that entrepreneurial spirit,” Brown said during the call. “We’ll announce over the next several months what that structure will be.”

The combined company’s board will have 12 members with six directors from each company. Brown will serve as chairman and CEO and Kubasik will serve as vice chairman, president and COO 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.

“We were both performing exceptionally well,” Brown said in a conference call Monday. “There’s not a need because one’s not performing well. We’re doing this for our stakeholders.”

Kubasik added: “Each company had a common culture, a drive for continuous improvement. Together I think there’s great opportunities. I think we can do more for our customers combined.”

Brown said merger talks began around the first of the year and accelerated over the summer. He said he and Kubasik have known each other for years and had discussed potential opportunities to work together as the two companies were complementary, rather than competitive.

“Most people have always believed that this combination made sense,” Kubasik said during the call. “The fact that we’re getting together should be no surprise.”

U.S. Sen. Charles Schumer, D-NY, on Sunday said he spoke with Brown, pushing for a commitment that no jobs will be cut in Rochester during the merger, adding that the combination could expand Harris’ workforce here.

“I am optimistic that the merger could expand Harris’s world-class workforce in Rochester over the next several years,” Schumer said in a statement. “Harris Corp. has proven time and time again that they are committed to Rochester as their home base to make superior radios, geospatial and intelligence systems for the U.S. military and our allies across the world, and I look forward to continue working hand-in-hand with this first-rate company to strengthen the Rochester economy.”

Dana Mehnert, Harris’ recently named president of Rochester’s communication systems division, also said the move was a good one for Rochester.

“We’re the world leader in tactical communications, a leader in public safety communications. That gives us a lot of capability in Rochester,” Mehnert said Monday. “If I look at L3 with the merger, they’ve got some significant capabilities and satellite communications and airborne communications and airborne intelligent surveillance reconnaissance (ISR) and specialized secure communications, so it’s very complementary with what we do in Rochester.”

Mehnert also noted that Harris’ Space and Intelligence Systems segment here will strengthen the combined company’s portfolio, particularly as some of what happens here are areas in which L3 has shown strength. And he noted Harris’ new manufacturing facility in Henrietta as a strength to L3 Harris Technologies.

“We have a world class defense electronics manufacturing facility that’s part of our communications segment. There might be some instances where L3 outsources some things today, maybe there are some things we can do in terms of manufacturing in our facility in Rochester,” Mehnert said. “The key thing is it makes the combined entity much stronger so we will be able to compete for and win more business, which I think will be good for our businesses overall, but particularly good for the businesses based in Rochester.”

L3 Harris will have  48,000 employees, including roughly 22,500 engineers, and customers in more than 100 countries. The company will occupy 28 million square feet of office and manufacturing space.

The merger is expected to close in mid-calendar year 2019.

Separately on Sunday, Harris reported revenue for the first quarter ended Sept. 29 of $1.5 billion, up 9 percent compared with the prior year. On a per-share basis, diluted earnings from continuing operations increased 31 percent to $1.78.

Net income increased 34 percent to $213 million and earnings before interest and taxes increased 12 percent to $300 million.

Analysts polled by Zacks Investment Research had expected diluted earnings per share of $1.70 on revenue of $1.53 billion.

“We are off to a strong start in fiscal 2019 with solid first quarter results and the highest revenue and EPS growth we have achieved in eight years,” Brown said in a separate statement Sunday. “We also increased our dividend by 20 percent and returned $282 million to shareholders through dividends and share repurchases. These results, combined with the recent approval of a well-funded budget, give us confidence to increase fiscal 2019 EPS guidance.”

Based in Rochester, Harris’ Communication Systems reported a 16 percent revenue increase from double-digit growth in all three businesses: Tactical Communications, Public Safety and Night Vision. In Tactical Communications, Department of Defense sales were up 31 percent on strong readiness demand and international business was up 2 percent from growth in the Middle East and Asia Pacific.

In September, U.S. Sen. Charles Schumer confirmed that Harris’ Communication Systems was one of two vendors that will provide up to $3.9 billion worth of orders for more than 1,500 of its most advanced two-channel handheld radios to fulfill the U.S. Army’s needs.

Harris’ Space and Intelligence Systems segment, formerly Exelis Geospatial Systems, is in Rochester Tech Park in Gates. The segment reported a 5 percent increase in revenue to $488 million in the first quarter and a 1 percent decrease in operating income to $86 million.

Harris updated its guidance for fiscal 2019, expecting revenue in a range of $6.53 billion to $6.65 billion, up 6 to 8 percent from fiscal 2018. Officials anticipate full-year earnings in the range of $7.80 to $7.90.

Shares of Harris stock (NYSE: HRS) closed Friday at $154.87. In heavy volume Monday morning, shares were trading up more than 8 percent at $167.60.

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