Melbourne-based Harris Corp. and New York-based L3 Technologies Inc. on Sunday announced they have agreed to a “transformational merger of equals.”
The combined company — to be called L3 Harris Technologies Inc. — will be headquartered in Melbourne.
This will be the largest merger in defense industry history, in a stock deal valued at $33.5 billion, based on current stock prices.
The company will become the eighth-largest company based in Florida, according to current Fortune 500 rankings.
Harris Director of Public Relations Jim Burke said the deal is likely to mean a strengthening of the company’s operations and staff levels in Brevard County.
Harris currently employs about 6,600 people in Brevard, while L3 has about 100.
Burke said the deal also will expand career opportunities for current Harris employees.
L3 Harris Technologies will be the sixth-largest U.S. defense company, based on revenue, with about $16 billion in annual revenues and more than 48,000 employees worldwide. It also will be one of the world’s 10 largest defense companies.
L3 Technologies is the larger company, with about 31,000 employees and $10 billion in annual revenue. Harris has about 17,500 employees and $6 billion in annual revenue.
L3 currently is the seventh-largest U.S. defense contractor and Harris is the ninth-largest, based on annual revenue.
The merger is expected to close in mid-2019, and is subject to regulatory approvals and approval by the stockholders of each company.
Burke said Harris was chosen as the headquarters for the combined company for several reasons. Among them are that the Space Coast has a “dynamic technology environment,” with a number of defense, aerospace and space companies having a major presence here; Harris has a 65-year legacy in the area; and Harris has a bigger staff level in Brevard than L3 has in its headquarters city of New York.
The merger agreement was unanimously approved by the boards of directors of both companies.
Under terms of the merger, L3 shareholders will receive 1.3 shares of Harris common stock for each share of L3 common stock they own. Upon completion of the merger, Harris shareholders will own about 54 percent and L3 shareholders will own about 46 percent of the combined company.
Burke said the deal has been under negotiation “in earnest” for several months, although the chief executive officers of Harris and L3 have known each other for a long time and have had informal conversations for some time about their companies.
In addition to its corporate headquarters, Harris has two segment headquarters based in Brevard County — electronic systems, and space and intelligence systems.
L3 has a facility in Melbourne that develops modems for military communications networks.
“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,” Harris Chairman, President and Chief Executive Officer William Brown said in a statement announcing the deal. “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.”
L3 Chairman, President and Chief Executive Officer Christopher Kubasik said the 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” defense contractor “focused on investing in important, next-generation technologies.
Kubasik said 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.”
Brown will serve as chairman and chief executive officer, and 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, Brown will transition to executive chairman and Kubasik to chief executive officer, after which Kubasik will become chairman and chief executive officer.
The combined company’s board of directors will have 12 members, with six directors from each company.
Harris supports government and commercial customers in more than 100 countries. The company has three business segments: communication systems, electronic systems, and space and intelligence systems.
L3 Technologies is a provider of global intelligence, surveillance and reconnaissance programs, communications and electronic systems for military, homeland security and commercial aviation customers. L3 Technologies develops advanced defense technologies and commercial solutions in pilot training, aviation security, night vision, weapons, maritime systems and space.
The companies said the combined operation will have “a well-balanced portfolio of complementary franchises.” They said about 57 percent of the combined company’s revenue would come from the U.S. military. The other 43 percent would come from a combination of other U.S. government agencies (13 percent), foreign governments (17 percent), and commercial customers (13 percent).
“The combined portfolio brings depth and balance of relationships across a wide range of customers, in both the U.S. and international markets,” the companies said in their announcement. “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,” as well as enhanced leadership in other areas, such as radio-frequency and spectrum technologies.
The companies also cited their “shared culture of innovation and operating philosophy” that would help drive growth and boost profits.
“Both L3 and Harris are technology-driven organizations with significant research-and-development investment and a combined workforce of approximately 22,500 engineers and scientists,” they said in their announcement. “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.”
The companies said the merger also is expected to generate about $500 million in annual pretax cost savings by the third year. The savings will come from such things as reduced spending, consolidating corporate and segment headquarters, establishing a common platform for information technology and finance, and reducing other overhead costs.
Berman is government editor at FLORIDA TODAY.