L-3 Agrees To $33.5 Billion Merger With F-35 Supplier 

Harris Corp. and L3 Technologies Inc. aren't exactly household names. A new deal could change that.

The defense contractors agreed to a merger that will form one of the industry's largest players, a $33.5 billion behemoth to challenge weapon-makers such as Raytheon Co. and Northrop Grumman Corp. With product lines spanning communications and electronics, the newly formed L3 Harris Technologies Inc. is poised to capitalize on military spending increases under President Donald Trump.

L3 has a large presence in and near Dallas-Fort Worth with nearly 10,000 workers in Plano, Arlington, Rockwall, Greenville and Waco. It recently invested $7 million in expand its pilot training center in Arlington.

The L3-Harris combination adds to a flurry of aerospace and defense deals fueled by higher government spending and a boom in jetliner sales. 

Boeing Co. last week closed its purchase of components distributor KLX Inc., a day before part-makers TransDigm Group Inc. and Esterline Technologies Corp. agreed to a $3.6 billion tie-up. Meanwhile United Technologies Corp. is poised to complete a $23 billion acquisition of Rockwell Collins Inc.

The L3-Harris merger has the "transformational potential" of the 1990s combination of Lockheed and Martin Marietta, said Copeland. That deal formed Lockheed Martin Corp., which is now the nation's largest defense contractor.

L3 had a market value of $15.3 billion at Friday's market close, while Harris's was $18.2 billion.

Under the terms of the agreement, described as a merger of equals, L3 holders will exchange each share for 1.3 shares of Harris common stock, valued at about $201.33, the companies said in a joint statement Sunday. After the deal is complete, in mid-2019, Harris shareholders will own about 54 percent of the combined company.

F-35 Fighter
Harris makes communications systems for battlefield management, as well as for civilian uses such as air traffic control and wireless network transmission, and was recently selected by Lockheed to develop a next-generation computer processor for its most advanced jet, the F-35 Lightning II fighter.

L3 provides communications equipment such as surveillance gear and cockpit electronics. It also makes night vision devices, sensor systems and satellite communications. The Department of Defense may have some concern about overlap in night vision systems, Robert Stallard, an analyst at Vertical Research Partners, said in a note.

While it's too soon to assess regulatory issues, the companies don't expect significant hurdles to closing the deal on antitrust grounds, said William Brown, Harris's chairman and chief executive officer.

L3 and Harris expect to generate cost savings and better growth by increasing scale.

The transaction will add to combined earnings per share in the first year after the close of the deal, and generate $500 million in annual pretax cost savings and $3 billion in free cash flow by the third year, according to the statement. For calendar 2018, the company would have about $16 billion in sales and earnings before interest and taxes of $2.4 billion.

In separate releases, both companies released financial results Sunday. Harris reported fiscal first-quarter revenue of $1.54 billion, up about 9 percent from a year earlier, thanks to growth in tactical communications, public, safety, and night vision. L3 said third-quarter sales rose about 10 percent to $2.52 billion.

Story Courtesy Of Dallas Morning News