Harris Corp. And L3 Technologies To Merge

(RTTNews) - Harris Corp. (HRS) and L3 Technologies Inc. (LLL) have agreed to combine in an all stock merger of equals. As per 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. In separate news releases, Harris and L3 Technologies both reported financial results for the quarter ended September 28, 2018.

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.

Harris Corp. said the combined company, L3 Harris Technologies, Inc., will be the 6th largest defense company in the U.S., 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, EBIT of $2.4 billion and free cash flow of $1.9 billion.

Harris Corp. stated that the combined company will remain committed to maintaining an investment grade credit rating and a dividend payout consistent with each company's current practice and deploying excess cash toward share repurchases, including up to $2 billion in share repurchases in the 12 months post-closing.

Harris Chairman, President and Chief Executive Officer, William Brown said, "... Integration planning is already underway, and from our extensive experience with integration, 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."

L3 Chairman, President and Chief Executive Officer, Christopher Kubasik said, "This merger creates greater benefits and growth opportunities than either company could have achieved alone."

Both L3 and Harris are technology driven organizations with significant R&D investment and a combined workforce of about 22,500 engineers and scientists.

The combination is expected to generate approximately $500 million of annual gross pre-tax cost synergies, or $300 million net of savings returned to customers, in year 3. The savings will come from reducing direct and indirect spend, rationalizing 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 $450 million cash to achieve the synergies over the next 3 years.

L3 Harris Technologies will be headquartered in Melbourne, Florida. The combined company's Board of Directors will have 12 members, consisting of six directors from each company. William Brown will serve as chairman and chief executive officer, 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, Mr. Brown will transition to executive chairman and Mr. Kubasik to chief executive officer, after which Kubasik will become chairman and chief executive officer.

Harris Corp noted that additional senior leadership positions for L3 Harris Technologies will be determined at a later date.

The merger is expected to close in mid-calendar year 2019, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.

Separately, Harris Corp. reported fiscal 2019 first quarter revenue of $1.5 billion, up 9% compared with the prior year. Earnings per share from continuing operations increased 31% to $1.78. Net income increased 34% to $213 million and earnings before interest and taxes or EBIT increased 12% to $300 million.

William Brown, chairman, president and chief executive officer said. "First quarter revenue and backlog were up in all segments and EBIT margin expanded 40 bps. We also increased our dividend by 20% 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.

As a result of the strong first quarter performance, Harris updated its guidance for fiscal 2019. The company expects revenue in a range of $6.53 - 6.65 billion, up 6 - 8% from fiscal 2018. The company increased its annual earnings per share from continuing operations outlook to a range of $7.80 - $7.90, from the previous guidance of $7.65 - $7.85.

In a separate press release, L3 Technologies reported preliminary earnings per share from continuing operations of $2.54 and adjusted earnings per share from continuing operations of $2.85 for the third-quarter ended September 28, 2018 compared to earnings per share from continuing operations for the quarter ended September 29, 2017 of $1.79.

Net sales of $2.519 billion for the 2018 third quarter increased by 10% compared to the 2017 third quarter.

L3 Technologies raised its fiscal year 2018 earnings per share from continuing operations outlook to a range of $9.77 to $9.87 from the prior estimation of $9.46 to $9.66.

The company now expects annual adjusted earnings per share from continuing operations to be in the range of $10.20 to $10.30 compared to the prior outlook of $9.80 to $10.00.

The company still expects net sales to be in the range of $10.00 billion to $10.20 billion.