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News

03
Jul 2019

L3 and Harris combine in merger of equals to create global defence technology leader

L3 Technologies and Harris Corporation have joined foreces, 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.

The combined company, L3 Harris Technologies, Inc., is now the 6th largest defence company in the U.S. and a top 10 defenc company globally, with approximately 50,000 employees and customers in over 130 countries. For calendar year 2018, the combined company generated net revenue of approximately US$17 billion.

L3Harris CEO, and former Harris Chairman, President and CEO, 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 enables 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."

L3Harris COO, and former L3 Chairman, President and CEO, 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. L3Harris Technologies possesses 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, L3Harris 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, L3Harris 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.

Find out more at L3Harris.com