Harris Corporation and L3 Technologies announced an all-stock merger on Oct. 14 that gave birth to the 6th largest defense contractor in the United States - the L3 Harris Technologies. Inc.
The L3 Harris Technologies, which is expected to become a global defense technology leader in 3 years, will build military capabilities across multiple domains of air, land, space, and cyber combat defense.
The merger, which is expected to close in the mid-calendar year of 2019, will be supported with nearly 48,000 combined employees from both companies including 22,500 engineers and scientists. The merger will also have the capacity to accommodate customers from more than 100 countries.
The company is expected to generate net revenue of about $16 billion for the calendar year 2018 and earnings before interest and taxes of about $2.4 billion, including a free cash flow of $1.9 billion.
Ultimately, L3 Harris Technologies aims to realize $500 million of annual gross cost synergies and $3 billion of free cash flow in three years according to William Brown, chairman, president, and chief executive officer for Harris. This could also include an estimated $300 million net of returned savings to customers, the company said.
The merger opens earning opportunities that could not be attained by either of the company when working independently, said Christopher Kubasik, chairman, president, and chief executive officer for L3.
Morgan Stanley and Goldman Sachs are acting as financial advisor to Harris and L3 respectively.
Sullivan & Cromwell and Simpson Thacher & Bartlett are serving as legal counsels to Harris and L3 correspondingly.
The all-stock merger immediately positioned L3 Harris Technologies as a defense contractor with a market value of $34 billion, Reuters noted. Harris has a market capitalization of $18.2 billion while L3 has $15.7 billion before their decision to merge.
A more all-stock merger of this kind could happen in the immediate future as U.S. President Donald Trump and the Congress engaged in defense spending spree. President Trump had signed a defense budget of about $639 billion for the defense to purchase new weapons, warships, aircraft, and increase troop members.
Mergers will help previously independent contractors to win bidding for bigger projects in defense, particularly with Trump's plan of establishing his controversial space force.
In June, Northrop Grumman Corp bought Orbital ATK for nearly $7.8 billion. The acquisition gave the company a bidding advantage over projects aimed at developing U.S. missile defense systems and space rockets.
In April, General Dynamics bought CSRA for $9.7 billion to provide more services it could offer with regard to government projects.
