As one might expect from $33.5 billion deal that creates a major new defense industry giant, the long weeks of negotiations involving Harris Corp. executives and those with L3 Technologies Inc. were tense and complex.

The labyrinth of issues revolved around strategizing how to get approval of the U.S. Department of Justice, the companies’ customer bases and the companies’ shareholders. There also were the complexities of the range of products they offered in the market, existing and pending contracts, and the nitty-gritty of corporate governance.

All of it was on the table, except for one not-so-insignificant detail: The new company — to be called L3 Harris Technologies Inc. — had to be based in Melbourne, the corporate headquarters for Harris for the last four decades.

“To me, headquartering the combined companies in Florida, in Brevard County, was non-negotiable,” said Bill Brown, Harris’ chairman, president and chief executive officer.

“It’s one of those things that we said upfront: ‘Any combined company needs to be headquartered in Melbourne, in Brevard County.’ ” Brown said.

Leadership from the two defense contractors officially came to terms on Friday, Oct. 12, and, over the following two days, employees of the two companies, key federal and state lawmakers, and media were notified.

When the deal is complete — probably sometime in mid-2019 —   will be the nation’s sixth-largest defense contractor.

With a stock deal valued at $33.5 billion — based on the stock prices when the deal was announced — it’s expected to be the largest merger in defense industry history. L3 Harris Technologies will become the eighth-largest company based in Florida, according to current Fortune 500 rankings.

Once it passes all the regulatory hurdles — including approvals from the U.S. Department of Justice, the U.S. Department of Defense and the European Union — and gains approval of both companies’ stockholders, L3 Harris Technologies will boast more than 48,000 employees worldwide and will be among the world’s 10 largest defense companies.

Brown said he expects employment will grow locally following the merger. Harris has about 6,800 employees in Brevard County, and is planning to fill about 375 current job openings. An undermined number of the more than 200 L3 jobs at its New York corporate headquarters also will be moving to Brevard.

It’s a deal that makes good strategic sense if, in the next two to three years, defense spending cools.

“The timing suggests defense companies are beginning to react to the prospect of flat domestic demand going forward,” said Loren Thompson, an aerospace and defense analyst with The Lexington Institute, a nonprofit organization based in Arlington, Virginia.

“They have benefited handsomely from the Trump defense increases, but Pentagon outlays are expected to increase by no more than the rate of inflation through 2023,” Thompson said. “With chances for organic growth receding after 2020, mergers and acquisitions are becoming the only surefire way to gain market share.”

In the works for months

On Monday, Brown sat down with FLORIDA TODAY in Harris’ corporate boardroom off NASA Boulevard in Melbourne to discuss the merger and his own future at Harris.

Drinking a large Starbucks coffee and quick to smile about what lies ahead for the new company, Brown said he and L3’s former chairman, president and CEO, Michael Strianese, first began talking about combining the companies in 2017. Strianese retired late last year, and was replaced by Christopher Kubasik, a former top Lockheed Martin Corp. executive, who, before coming to L3, headed Seabury Advisory Group LLC, a leading aviation and aerospace and defense professional services firm.

Brown said he knew Kubasik both professionally and socially from various business forums and events.

The talks grew more serious this past year. Merger discussions continued into this year,  with the two CEOs and others meeting in various spots around the outskirts of New York City and Washington, D.C.

Members of both companies’ boards also were kept in the loop.

Unlike Harris’ $4.56 billion acquisition in 2015 of Exelis Inc., which had been based in Tysons Corner, Virginia, the deal with L3 and subsidiary issues like the headquarters were never widely known outside the leadership circles of both companies.

“We’re two large public companies, and until something is definitive, it’s something that we wouldn’t want to make public,” Brown said. “Until things are signed and approved by the board, you’re never fully done. So, obviously, we had to keep it very confidential.”

Soon after Oct. 12, Brown contacted Florida’s U.S. senators, Bill Nelson, D-Orlando, and Marco Rubio, R-Miami; Gov. Rick Scott; U.S. Rep. Bill Posey, R-Rockledge; and leadership of the U.S. Senate and House Armed Services committees.

Company name vs. headquarters location

With everything on the table, Brown walked away with making sure the company headquarters would stay on NASA Boulevard in Melbourne, across the street from the Orlando Melbourne International Airport.

L3 will get the lead position of the new company name.

“The name ‘L3 Harris Technologies’ may not appear elegant,” Brown said. “But it preserves the legacies of both companies and is satisfying to both companies.”

State and local officials seemed fine with the tradeoff. With Northrop Grumman Corp., The Boeing Co., Lockheed Martin Corp. — not to mention the growing private space ventures Blue Origin and SpaceX —  already in Brevard with a strong presence, having the headquarters of the nation’s sixth-largest defense contractor in the heart of the county would be a crown jewel.

“Harris is a Fortune 500 company and one of the largest companies in our state,” said Joe York, vice chairman of Enterprise Florida’s board of directors. “Their continued commitment to Florida by maintaining their headquarters here and employing Floridians is incredibly important to our economy.”

In addition to its Melbourne corporate headquarters, Harris has two of its three segment headquarters based in Palm Bay — electronic systems, and space and intelligence systems.

No financial incentives

At its headquarters at 600 Third Ave. in midtown Manhattan — a few blocks west of the United Nations — L3 has about 200 executives. It’s unclear how many will move to Florida as part of the merger.

(Brown said there also would be some additional employees for L3’s operation at Woody Burke Drive, just around the corner from Harris’ headquarters, where about 100 employees develop modems for military communications networks.)

In contrast with Harris’ 2015 acquisition of Exelis, the headquarters issue was never in question with the L3 deal. And Brown noted that, while there were discussions of seeing what local and state tax incentives might be available for keeping the headquarters on the Space Coast, he quickly nixed that idea.

“We made a strong choice about that,” Brown said. “That was debated within the company, with our board. I just didn’t think personally that it was the right time in the environment to put our employees in this area and the legislators, through the process of trying to force the issue.

“We think it was important for us to be here and we made that announcement from Day One,” Brown said.

Meshing the two companies

Harris and L3 will have combined revenue of about $16.4 billion in the current calendar year, including about $10.1 billion for L3 and $6.3 billion for Harris. L3 currently ranks seventh among defense companies and Harris ranks ninth.

L3 has about 31,000 employees, including about 15,000 engineers, while Harris has about 17,500 employees, including about 7,900 engineers.

Both Brown and Kubasik said the two companies complement each other very well, but there is likely to be corporate learning curve as the two come together. Both companies serve the same customer base, and are focused on innovation, operational excellence and driving productivity.

Brown told stock analysts during a conference call a day after the merger announcement that he and Kubasik face “an enormous task over the next three years” in combining the two companies. But he added that “investors should be reassured that we know exactly what to do here.”

During the interview with FLORIDA TODAY, Brown was very confident about Harris applying its experience in making the merger work.

“I think Harris is further along in that journey than L3 is,” Brown said. “L3 bought 140 companies in the last 20 years, not any which really integrated. That is not the case with Harris. We’re a much more integrated company, with a more standard system of policies and processes and a very robust operational excellence program.”

Kubasik said the merger will fulfill a goal of his of creating what he termed “a nontraditional sixth prime” to join the top five U.S. prime military contractors — Lockheed Martin, Northrop Grumman, Boeing, Raytheon and General Dynamics.

Complementary portfolios

The two companies have a total of six business segments, which likely will be combined into three or four under the new corporate structure, but details still need to be worked out, the CEOs said during the conference call.

Brown said the companies have “complementary portfolios” of businesses, but with little product overlap.

“We play in the same space, but we’re not competing,” Brown said.

Kubasik told stock analysts that “most people have always believed for a long time that this combination made sense, and Bill and I just worked hard to make it happen. I don’t think the fact that we’re getting together should be a surprise — maybe the timing is — but we both pride ourselves on being rather agile and innovative. And I think people will be impressed how quickly we were able to pull this off without having anything leaked, so we’re quite proud to that.”

“I think it’s going to be an exciting, transformation deal,” Kubasik said.

Kubasik said it is premature to discuss issues of overlapping product lines, but doesn’t expect any regulatory issues to crop up.

Brown said both Harris and L3 are “performing exceptionally well,” so there was no financial urgency to reach a merger agreement, which he said will be good for the companies, their shareholders and their customers.

What’s next

Kubasik and his wife visited Melbourne last Monday night, checking out the area and looking at homes. He visited the Harris headquarters Tuesday and met with executives.

Brown will serve as chairman and chief executive officer, while 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, focusing on the integration process for the two companies, while Kubasik will be chief executive officer. After that, Kubasik will become chairman and chief executive officer.

Brown sees Kubasik becoming an integral part of the Space Coast community, both on the economic and non-business side.

“He recognized how important it is for the top management of Harris Corp. to be living in the community, being part of the community and participating in community events,” Brown said.

After the third year following the merger, Brown said he’s not sure what’s in store for him personally.

Most of his predecessors at Harris served as CEO for about eight years. Brown will have been with Harris for a decade once his term as executive chairman is complete.

Asked about what he’ll do after leaving Harris, Brown said: “I haven’t decided yet. It’s too soon to say. We have a lot of work coming at us. Time flies.”

“For right now, I’m focused on getting this transaction closed and integrating it very well and making sure that we continue to perform.”

Contact Price at 321-242-3658 or wprice@floridatoday.com. You can also follow him on Twitter @Fla2dayBiz.

More about the combination

Where revenue comes from: About 57 percent of the combined company’s revenue would come from the U.S. military, including 26 percent from the Air Force, 13 percent from the Navy, 10 percent from the Army and 8 percent from other Department of Defense entities. 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).

Global presence: The companies have customers in more than 100 countries.

Corporate governance: The combined company’s board of directors will have 12 members, with six directors from each company, including Bill Brown andChristopher Kubasik. In the meantime, Brown and Kubasik will be co-chairs of a joint integration team to work out details of bringing the two companies together.

Fortune 500 ranking: L3 Harris Technologies Inc. would be ranked about 180th on the latest Fortune 500 list and would be No. 8 among companies based in Florida, based on revenue.

Merger terms: Under terms of the merger, L3 Technologies Inc. shareholders will receive 1.3 shares of Harris Corp. 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.

Cost savings: The companies say the merger will create about $500 million of annual pretax cost savings by year three. 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.

L3 Harris customers will receive about $200 million a year of those savings, while the L3 Harris will net about $300 million a year of those savings.

The companies said they will make will make a “one-time investment” of $450 million during the next three years to facilitate the consolidation.

Source: Florida Today

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