- 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
- $500M of annual gross pre-tax cost
synergies in year 3; $300M net of savings returned to
customers
- Cash EPS accretive in first full
year post close; targeting $3 billion in free cash flow by year
3
- Combined company to be named “L3
Harris Technologies” and headquartered in Melbourne,
Florida
Harris Corporation (NYSE:HRS) and L3 Technologies, Inc.
(NYSE:LLL) have agreed to combine in an all stock merger of equals
to create a global defense technology leader, focused on developing
differentiated and mission critical solutions for customers around
the world. 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.
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,
EBIT of $2.4 billion and free cash flow of $1.9 billion.
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, 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
E. 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 6th 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.”
Strategic Benefits of the Merger
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 U.S. 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 organizations 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 and operational excellence, L3
Harris Technologies will continue to drive operating margin
improvement.
Meaningful value creation opportunity: 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.
Strong balance sheet with significant cash flow
generation: On a calendar year 2018 basis, L3 Harris
Technologies is expected to have approximately $16 billion of
revenue, $2.4 billion of EBIT, and $1.9 billion of free cash flow.
The combined company will target $3 billion in free cash flow by
year 3, driven by organic growth, cost synergies, working capital
improvements and capital expenditure efficiencies. L3 Harris
Technologies will be well capitalized with a strong balance sheet
and a leverage ratio of 2.2x net debt to trailing twelve months
EBITDA. 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.
Governance and Leadership
L3 Harris Technologies will be headquartered in Melbourne,
Florida and led by a highly experienced and proven leadership team
that reflects the strengths and capabilities of both companies and
will share equally in the integration process.
The combined company’s Board of Directors will have 12 members,
consisting of six directors from each company. William M. Brown
will serve as chairman and chief executive officer, and Christopher
E. 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 Mr. Kubasik will become chairman and chief executive
officer.
Additional senior leadership positions for L3 Harris
Technologies will be determined at a later date.
Timing and Approvals
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.
Advisors
Morgan Stanley & Co. LLC is acting as financial advisor to
Harris and Sullivan & Cromwell LLP is serving as principal
legal counsel, with Paul, Weiss, Rifkind, Wharton & Garrison
LLP as special counsel to the board of directors. Goldman Sachs is
acting as financial advisor to L3 and Simpson Thacher &
Bartlett LLP is serving as legal counsel.
Earnings Releases
In separate news releases, Harris and L3 Technologies both
reported financial results for the quarter ended September 28,
2018.
Joint Conference Call and Webcast Details
Harris Corporation and L3 Technologies will conduct a live
conference call and webcast on October 15, 2018 at 8:00 a.m. (ET).
The webcast of the conference call, along with related slides, will
be accessible through Harris’ and L3’s websites as well as through
the joint transaction website at
www.l3harris.mergerannouncement.com. The conference call will also
be available for replay through Harris’ and L3’s websites, or at
(800) 585-8367 (domestic) and (404) 537-3406 (international)
through October 29, 2018. Conference ID 6109449.
About Harris Corporation
Harris Corporation is a leading technology innovator, solving
customers’ toughest 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. The company is
organized into three business segments: Communication Systems,
Electronic Systems and Space and Intelligence Systems. Learn more
at harris.com.
About L3 Technologies
L3 Technologies is an agile innovator and leading 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 defense technologies
and commercial solutions in pilot training, aviation security,
night vision and EO/IR, weapons, maritime systems and space. Learn
more at www.l3t.com.
Forward-Looking
Statements
Statements in this communication that are not historical facts
are forward-looking statements that reflect Harris Corporation’s
and L3 Technologies’ respective management’s current expectations,
assumptions and estimates of future performance and economic
conditions. Such statements are made in reliance on the safe harbor
provisions of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Forward-looking
statements include but are not limited to: statements about the
expected timing and completion of the proposed combination; the
anticipated benefits of the proposed combination, including
estimated synergies; the effects of the proposed combination,
including on future financial and operating results and financial
position; the integration of the parties’ operations, including
accelerated investment in technology and technology capabilities;
plans and expectations for the combined company, including
regarding free cash flow, share repurchases, dividend levels,
credit ratings and leverage ratio; and other statements that are
not historical facts. The parties caution investors that any
forward-looking statements are subject to risks and uncertainties
that may cause actual results and future trends to differ
materially from those matters expressed in or implied by such
forward-looking statements. Among the risks and uncertainties that
could cause actual results to differ from those described in
forward-looking statements are the following: the occurrence of any
event, change or other circumstances that could give rise to the
termination of the merger agreement; the possibility that
stockholders of either party may not approve the proposed
combination; the risk that the parties may not be able to obtain
(or may be required to make divestitures in order to obtain) the
necessary regulatory approvals or to satisfy any of the other
conditions to the proposed combination in a timely manner or at
all; risks related to disruption of management time from ongoing
business operations due to the proposed combination; risks related
to the inability to realize benefits or to implement integration
plans and other consequences associated with the proposed
combination; the risk that any announcements relating to the
proposed combination could have adverse effects on the market price
of the common stock of either or both parties; and the risk that
the proposed combination and its announcement could have an adverse
effect on either or both parties’ ability to retain customers and
retain and hire key personnel and maintain relationships with
suppliers and customers, including the U.S. Government and other
governments, and on their operating results and businesses
generally. The foregoing list of risks and uncertainties that could
cause actual results to differ from those described in
forward-looking statements is not exhaustive. Further information
relating to factors that may impact the parties’ results and
forward-looking statements are disclosed in their respective
filings with the Securities and Exchange Commission (“SEC”). The
forward-looking statements in this communication are made as of the
date of this communication, and the parties disclaim any intention
or obligation, other than imposed by law, to update or revise any
forward-looking statements, whether as a result of new information,
future events, or otherwise. Persons receiving this communication
are cautioned not to place undue reliance on forward-looking
statements.
Additional Information and Where to
Find It
This communication does not constitute an offer to sell or a
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. This communication is made in respect of the
proposed combination of L3 Technologies, Inc. (“L3”) and Harris
Corporation (“Harris” and together with L3 Technologies, the
“parties”), as contemplated by the Agreement and Plan of Merger,
dated as of October 12, 2018 (the “merger agreement”), among L3,
Harris and a wholly owned merger subsidiary of Harris . In
connection with the proposed combination, Harris intends to file a
registration statement on Form S-4 with the SEC that will include a
joint proxy statement of the parties that also constitutes a
prospectus of Harris. The parties will make the joint proxy
statement/prospectus available to their respective stockholders.
This communication is not a substitute for the registration
statement, the joint proxy statement/prospectus or any other
documents that either or both parties or any of their respective
affiliates may file with the SEC or make available to their
respective security holders. INVESTORS AND SECURITY HOLDERS OF EACH
PARTY AND ITS AFFILIATES ARE URGED TO READ CAREFULLY AND IN THEIR
ENTIRETY ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE
JOINT PROXY STATEMENT/PROSPECTUS (WHEN AVAILABLE), BECAUSE THEY
CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED COMBINATION.
Copies of the registration statement, including the joint proxy
statement/prospectus, and other documents filed with the SEC (when
available) may be obtained free of charge on the SEC’s website at
www.sec.gov. Copies of documents filed with the SEC by Harris also
may be obtained free of charge on its website at
www.harris.com/investors/financial-reports. Copies of documents
filed with the SEC by L3 Technologies also may be obtained free of
charge on its website at www.l3t.com
Participants in
Solicitation
Harris, L3 and certain of their respective directors and
executive officers may be deemed to be participants in the
solicitation of proxies in respect of the proposed combination
under the rules of the SEC. Information about the directors and
executive officers of Harris is set forth in the proxy statement
relating to its 2018 annual meeting of stockholders filed with the
SEC on September 6, 2018. Information about the directors and
executive officers of L3 is set forth in the proxy statement
relating to its 2018 annual meeting of stockholders filed with the
SEC on March 26, 2018. Additional information regarding the
interests of these participants will be included in the joint proxy
statement/prospectus regarding the proposed combination and other
relevant materials to be filed with the SEC when they become
available. Copies of these documents may be obtained free of charge
as described in the preceding paragraph.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20181014005036/en/
Harris Corporation:Investor Relations:Anurag Maheshwari,
+1-321-727-9383anurag.maheshwari@harris.comorMedia:Jim Burke,
+1-321-604-0067jim.burke@harris.comorL3
Technologies:Investor Relations:John Kim,
+1-212-805-5230john.kim@L3T.comorMedia:Jennifer Barton,
+1-917-822-6763Jennifer.Barton@L3T.com
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