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Orlando Sentinel: Melbourne-based Harris to merge with L3 technologies in $33.5 billion deal

Monday, October 15, 2018

MELBOURNE — L3 Technologies and Harris Corporation have agreed to merge in an all-stock deal, creating a $33.5 billion military technology company based in Brevard County.

The combined company will be called L3 Harris Technologies and will be based in Melbourne, where Harris has its corporate home. Its 12-member board of directors will consist of six members from each company.

The deal revealed Sunday is expected to close next year, pending a review by the Defense Department.

At $16 billion in projected 2018 revenue and some 48,000 employees, the new L3 Harris Technologies will be able to boast that it is the sixth-largest U.S. defense company.

Harris handles complex military communications networks for battlefield management and in military aircraft. It is also known for a brand of Stingray cellphone trackers used by U.S. law enforcement. And it has made inroads in the space industry thanks to a recent classified contract, executives said in a recent call with investors.

New York-based L3 Technologies’ most visible products are the 360-degree scanners that travelers encounter when they go through airport security, part of a $170 million line of business with the Department of Homeland Security. It also makes night-vision equipment and sensor systems used in military aircraft.

Under the stewardship of Chris Kubasik, a former Lockheed Martin chief operating officer who took the helm at L3 last year, the company has established new business units around next-generation military technologies such as undersea drones.

Under a succession plan agreed to as part of the deal, Harris chief executive William Brown will serve as chief executive of the combined company for two years following the close of the merger. Then, L3′s Kubasik is to become chief executive after the combined company’s third year, according to an announcement from both companies.

“When Chris Kubasik was forced out as the prospective CEO of Lockheed Martin, many observers thought he would be back,” said Loren Thompson, a defense analyst with the nonprofit Lexington Institute. “This clearly demonstrates he is not done being a major player in the defense sector.”

The five largest defense contractors — Lockheed Martin, Boeing, Raytheon, Northrop Grumman and General Dynamics — have dominated the U.S. defense market for years, each of them taking in more than $10 billion a year from the federal government.

L3 Technologies and Harris Corporation took in a combined $8.3 billion from the federal government last year, making the combined company the seventh-largest recipient of 2017 U.S. contract dollars behind the five major defense contractors and McKesson Corporation, a drug company.

The combination is the latest in a flurry of mergers and acquisitions among government contractors, which are taking advantage of a frothy stock market and favorable defense spending to pursue new opportunities.

Last year, Northrop Grumman bought Orbital ATK, a Dulles, Va.-based contractor focused on the space industry, for $7.8 billion in cash. Also last year United Technologies Corporation agreed to buy aircraft parts manufacturer Rockwell Collins for $30 billion.

Dealmaking accelerated at the beginning of 2018, after a 2019 defense budget facilitated a healthy jump in spending and Congress lifted the “sequestration” caps that have hobbled the industry since 2013.

The merger of L3 and Harris also represents a further step in hollowing out the middle of the U.S. defense market, as large and middle-tier government contractors are finding they can climb the ladder more quickly by joining forces.

The Defense Department could block the merger of L3 and Harris depending on the results of its review, though it has taken a hands-off approach to recent mergers.

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