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BUSINESS NEWS

October 19, 2018 by

Sponsored by Odyssey Corporate Finance

 

Contact: Tom McCarthy, Director, Odyssey Corporate Finance

M: 07867 459 600

D: 0121 503 2375

E:

www.odysseycf.com

————————————————————————-

21 Oct 18. Babcock International set to scrap Appledore shipyard in Devon. Engineering giant Babcock International is poised to announce the closure of its Appledore shipyard next month, despite last-ditch efforts by ministers to save the north Devon site.

A dearth of orders has in effect signed the shipyard’s death warrant, with no more work lined up once it finishes a patrol vessels order for the Irish navy. The FTSE 250 engineer, which repairs the Royal Navy’s submarines and warships, is to discuss Appledore at a strategy day before a board meeting next month, where its fate will be decided.

The 163-year-old shipyard’s closure would affect about 200 workers, risking a political storm amid government efforts to spread defence work around the country and boost the southwest’s economy. Ministers are understood to have urged Babcock to delay news on Appledore’s future until after the Conservative Party conference in Birmingham this month.

Appledore’s struggles were highlighted last weekend with the publication of an anonymous short-selling research note, which criticised Babcock’s long-serving management team and accused it of “burying bad news”. That dossier knocked 4% from the shares.

Closing Appledore could cost Babcock £20m in exceptional charges, analysts at Liberum Capital said. Work on a new light warship has been delayed and Appledore recently missed out on a contract to build a vessel for the Maltese military.

Babcock is understood to have hired corporate investigators from Kroll to track down the report’s authors, who have refused to disclose their identities.

Babcock has increasingly been targeted by short-sellers, with a 10.2% short interest in the company’s shares by the end of last week, according to data from Markit. Short-sellers borrow companies, shares with the aim of profiting from a fall in their value. Babcock’s shares have halved since their peak about four years ago and ended last week at 620p apiece, valuing the company at £3.1bn.

The gulf between its share price performance and its track record of 15 years of unbroken growth in sales and profits has baffled the City and put it on the radar of potential predators. Earlier this year, Babcock’s chairman Mike Turner lost a battle to prevent engineer GKN, which he also chaired, being taken over by listed private equity firm Melrose. Turner is now fighting to save his reputation at Babcock. “He’s not going to sit there and allow himself to be ousted like he was at GKN,” said an industry source. “Everything is on the table and it’s going to be no-holds barred.”

Babcock could attract takeover interest from private equity giants including Carlyle and KKR. However, an American private equity takeover of the Ministry of Defence’s second-biggest supplier would be deeply controversial.

The government has golden shares in Babcock’s shipyards at Devonport and Roysth on the River Forth, which allow ministers to block “unacceptable ownership”, remove directors and force the sale of shares.

Babcock will report profits for the six months to the end of September on November 21. It said: “We are reviewing options for our business at Appledore.” (Source: The Sunday Times)

18 Oct 18. Textron Inc. (NYSE: TXT) today reported third quarter 2018 income from continuing operations of $2.26 per share, reflecting the gain on the sale of the Tools & Test product line of $1.65 per share, or $0.61 per share of adjusted income from continuing operations, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release. This compares to $0.65 per share of adjusted income from continuing operations in the third quarter of 2017.

“Revenues were lower in the quarter, largely reflecting declines at Industrial and Textron Systems,” said Textron Chairman and CEO Scott C. Donnelly. “Operationally, we achieved margin improvements at Aviation and Bell, reflecting strong execution within those segments.”

Cash Flow

Net cash provided by operating activities of continuing operations of the manufacturing group for the third quarter totaled $319m, compared to $79m in last year’s third quarter. Manufacturing cash flow before pension contributions, a non-GAAP measure that is defined and reconciled to GAAP in an attachment to this release, totaled $259 m compared to $281 m during last year’s third quarter.

In the quarter, Textron returned $468m to shareholders through share repurchases, compared to $122m in the third quarter of 2017.

Outlook

Textron now expects full-year 2018 GAAP earnings per share from continuing operations will be in the range of $4.81 to $4.91, or $3.20 to $3.30 on an adjusted basis (non-GAAP), which is reconciled to GAAP in an attachment to this release.

The company reaffirms full-year manufacturing cash flow before pension contributions (a non-GAAP measure) to be in a range of $750 to $850 m.

Third Quarter Segment Results

Textron Aviation

Revenues at Textron Aviation of $1.1bn were down 2%, due to lower volume and mix reflecting lower turboprop volume, partially offset by favorable pricing.

Textron Aviation delivered 41 jets, flat with last year, and 43 commercial turboprops, down from 57 last year.

Segment profit was $99m in the third quarter, up from $93m a year ago, due to favorable price and performance, partially offset by the impact of lower volume and mix.

Textron Aviation backlog at the end of the third quarter was $1.8bn.

Bell

Bell revenues were $770m, down 5% primarily on commercial mix, partially offset by higher military revenues.

Bell delivered 43 commercial helicopters in the quarter, up from 39 last year.

Segment profit of $113m was up $7m, largely the result of favorable performance on military programs, partially offset by commercial mix.

Bell backlog at the end of the third quarter was $5.7bn.

Textron Systems

Revenues at Textron Systems were $352m, down from $458m last year, reflecting lower TAPV deliveries at Textron Marine & Land Systems and lower volume in the Simulation, Training & Other product line.

Segment profit was down $11m, primarily reflecting the lower net volume.

Textron Systems’ backlog at the end of the third quarter was $1.1bn.

Industrial

Industrial revenues decreased $112m largely related to the disposition of our Tools & Test product line.

Segment profit was down $48m from the third quarter of 2017, largely due to unfavorable pricing and performance, and the impact from the disposition of our Tools & Test product line.

Finance

Finance segment revenues were down $3m, and profit was down $4m from last year’s third quarter.

17 Oct 18. Thales (Euronext Paris: HO) announced today its order intake and sales for the period ending 30 September 2018.

Order intake and sales at 30 September 2018

. Solid order intake: €9.5bn, up 7%1 (up +9% on an organic basis)

. Sales: €10.9bn, up 6.2% (up +7.9% on an organic basis)

. Confirmation of all 2018 financial objectives – expected organic sales growth and EBIT3 at the top end of the ranges set in March 2018

“Over the first nine months of the year, Thales confirmed its growth momentum, with increased business across all segments and geographic regions. Order intake is in line with our expectations, while organic sales growth of some 8% is substantially ahead of our full year

Target. The solid performance over the first 3 quarters of the year increases our confidence in Thales’s ability to meet its full year objectives. As a result, we now expect to hit the top end of the ranges

announced last March, both in terms of organic growth and EBIT. Thanks to the efforts of its employees around the globe, Thales reinforces its leadership position in its 5 end markets and strengthens its highly value-creative profitable growth model.” Patrice Caine, Chairman and Chief Executive Officer

Order intake

In the first nine months of 2018, order intake stood at €9,468m, up 7% compared with 9m 2017 (+9% at constant scope and currency). Over this period, Thales secured 10 large orders with a unit value of over €100m:

. 3 large orders recorded in Q1 2018, covering the modernisation of air traffic control in Australia (OneSKY project), the supply of systems onboard the 12 additional Rafale combat aircraft ordered by Qatar, and the renovation of signalling systems on one of the main railways in Poland;

. 3 large orders recorded in Q2 2018, covering the design of a new-generation very high throughput satellite for Eutelsat (Konnect VHTS), the supply to the German Navy, in a consortium with Atlas Elektronik, of the combat management system (CMS) for 5 K130 corvettes, and the modernisation of sonar systems equipping the Australian Royal Navy’s Collins class submarines;

. 4 large orders booked in Q3 2018:

o An amendment to the construction contract for 6 “Meteosat Third Generation” meteorological observation satellites, for ESA and EUMETSAT

o Extension of the contract to provide the radio network for the London

Underground (“Connect” system)

o A new tranche of the CONTACT project, the largest military software-defined radio programme in Europe

o Extension of a service contract covering the British Army’s air defence

equipment (Adapt Project)

At €7,046m, orders with a unit value of less than €100m were stable compared to 9m 2017, with the acceleration of order intake in Q3 offsetting, as expected, the decline seen in H1. From a geographical point of view, order intake benefited from strong growth in mature

markets (€7,644m, +18%), led by all large regions, with the drop in orders in France reflecting a high basis of comparison. This momentum offset the slowdown in order intake in emerging markets (€1,823m, -23%).

Order intake in the Aerospace segment was stable (-1%) at €3,044m compared with €3,082m for 9m 2017, benefiting from a low basis of comparison in Q3, particularly in Space.

At €1,267m, order intake in the Transport segment was particularly brisk, up 30% compared to 9m 2017. Following several successes in H1 2018 in mainline signalling (Poland, Norway), this segment benefited in Q3 from the extension of a contract with London Underground and the signing, in partnership with Siemens, of a signalling contract for the future

lines 15, 16 and 17 of the Grand Paris Express, Europe’s largest urban transport project.

Order intake in the Defence & Security segment amounted to €5,132m, up 8% from €4,750m in 9m 2017, notably with good momentum in equipment for military ships and submarines, military radio communications, air traffic control (with the OneSKY project), and cybersecurity.

Sales

Sales for 9m 2018 stood at €10,873m, compared to €10,236m over the same period in 2017, up 6.2%. The organic change (at constant scope and currency) came in at +7.9%, driven by strong momentum in the Transport and Defence & Security segments. From a geographical7 perspective, this performance reflected solid growth in both emerging (up +7.2%) and mature markets (up +8.2%).

Sales in the Aerospace segment totalled €4,010m, a 2.0% increase compared with 9m 2017 (+3.4% at constant scope and currency). This limited growth reflects the slowdown of the commercial telecom satellite market, along with a high basis of comparison in In-Flight Entertainment. The stronger growth in Q3 was driven by Q3/Q4 phasing effects.

In the Transport segment, sales came in at €1,373m, up 18.7% compared with 9m 2017 (up +21.1% at constant scope and currency). The segment benefited from the ramp-up of the large urban rail signalling contracts signed in 2015 and 2016, combined with an upturn in mainline activity. However, growth in this segment is expected to slow down significantly during Q4, with the basis of comparison becoming less favourable.

Sales in the Defence & Security segment stood at €5,450m, up 6.7% compared with 9m 2017 (up +8.4% at constant scope and currency). This segment continued to benefit from broad-based growth, particularly driven by surface radars, combat aircraft systems, systems and services for military ships and submarines, military radio communications, and cybersecurity.

Update on the projected acquisition of Gemalto

On 17 December 2017, Thales and Gemalto (Euronext Amsterdam and Paris: GTO) announced the signing of a merger agreement including an all-cash offer for all issued and outstanding ordinary shares of Gemalto, for a price of €51 per share cum dividend. This offer was unanimously recommended by Gemalto’s Board of Directors. The proposed merger is progressing satisfactorily. 7 of the required 14 regulatory clearances

have already been obtained, and the steps to obtain the remaining 7 are well advanced. Thales and Gemalto are discussing with certain antitrust authorities on remedy proposals to address their concerns with respect to the General Purpose Hardware Security Modules (GP HSM) market. As a consequence, Thales and Gemalto now expect to close the offer in Q1 2019, once all the regulatory authorisations have been obtained.

Outlook

The sound performance seen over the first nine months of the year is leading the Group to adjust its 2018 objectives in terms of organic sales growth and EBIT. In 2018, Thales should continue to benefit from positive trends in the majority of its markets. The acceleration of commercial momentum in the defence businesses should offset the

slowdown of the telecom satellite market. In this context, 2018 order intake is expected to be around €15.5bn.

In spite of more moderate growth in the aerospace segment, sales should see organic growth at the top end of the range announced last March, which was between +4% and +5% compared to 2017 sales restated for the application of IFRS 15 (€15,228m).

The Group will continue to increase its R&D investments, particularly in digital technologies. The self-funded R&D expenses should therefore increase by around 10% compared to 2017. The growth in sales, combined with the impact of the Ambition 10 strategy on product competitiveness and differentiation, should result in Thales delivering an EBIT in 2018 at the top end of the range announced last March, which was between €1,620 and €1,660m (based on February 2018 scope and exchange rates), representing an increase of 19% to 22% compared to 2017 EBIT restated for the application of the IFRS 15 standard (€1,365m). Over the 2018-2021 period, Thales has set the following medium-term targets:

. organic sales growth11 of +3% to +5% on average over the 2018-2021 period, with each

operating segment expected to outperform its market;

. an EBIT margin of 11% and 11.5% by 2021, resulting from a 200 to 240 basis point

improvement related to competitiveness initiatives, partly reinvested in self-funded R&D, representing approximately 50 to 100 basis points.

These financial targets do not take into account the potential impact of the projected acquisition of Gemalto. The Group may need to update them depending on the effective conclusion date of this transaction.

18 Oct 18. French group Thales’ nine-month sales growth accelerates on defence wins. Thales (TCFP.PA) expects to reach the top end of its financial goals for the year, the French company said as it posted accelerating nine-month revenues led by defence activities.

Europe’s largest defence electronics group said on Thursday that nine-month sales had risen 6.2 percent – or 7.9 percent on a like-for-like basis – to 10.873bn euros (£9.54bn). Its fresh order intake reached 9.468bn euros, up 7 percent from the same period last year, thanks in part to radio contracts for the London Underground and French military.

“The solid performance over the first three quarters of the year increases our confidence in Thales’ ability to meet its full-year objectives,” Chief Executive Patrice Caine said in a statement.

Order intake and revenues accelerated in the third quarter, though the basis for comparisons will be less favourable in the final three months, Finance Director Pascal Bouchiat said.

“Even so, the situation at the end of September means that for the full year we will be at the high end of the ranges we published on sales and profitability,” he told reporters.

Thales, in which the French state owns 26 percent and Dassault Aviation (AVMD.PA) 25 percent, is targeting underlying growth of 4-5 percent in 2018 sales and a 19-22 percent jump in operating profit to between 1.62 and 1.66 bn euros.

The group – which provides military radar, civil air traffic control systems and rail infrastructure – is in the process of buying chipmaker Gemalto (GTO.AS) for 4.8 bn euros to become a leading player in digital security. Earlier this month, Thales said it had offered concessions to address antitrust concerns after the European Commission began a full-scale investigation, citing fears that the deal could push up prices.

Bouchiat said this would involve selling activities in GP HSMs (general-purpose hardware security modules), which generate keys and encrypt and decrypt data. The business accounts for 90m euros of sales and 300 staff.

“Selling this activity and finding a buyer in satisfactory conditions will necessarily take a little time,” he said. Thales reiterated it aimed to finalise the deal in the first quarter of next year rather than by the end of 2018. (Source: Reuters)

17 Oct 18. J.F. Lehman & Company Completes Sale of National Response Corporation and Sprint Energy Services; Combined Business Now NYSE Listed. J.F. Lehman & Company (“JFLCO”), a leading middle-market private equity firm focused exclusively on the aerospace, defense, maritime, government and environmental sectors, is pleased to announce that its investment affiliate JFL-NRC-SES Partners, LLC (“JFL-NRC-SES”) has completed the sale of all its membership interests in NRC Group Holdings, LLC (“NRC Group”) – formed earlier this year through the combination of JFLCO portfolio companies National Response Corporation (“NRC”) and Sprint Energy Services (“Sprint”) – to Hennessy Capital Acquisition Corp. III (NYSE American: HCAC.U, HCAC, HCAC.WS) (“HCAC”).   As part of the transaction, HCAC changed its name to “NRC Group Holdings Corp.” (the “Company”) and expects that, effective October 18, 2018, it’s common stock and warrants will begin trading under the ticker symbols “NRCG” and “NRCG WS,” respectively, on the NYSE American exchange.  Investment affiliates of JFLCO will continue to own a controlling equity position in the combined public company.

NRC Group is a global provider of comprehensive environmental, compliance and waste management services.  NRC Group’s broad range of capabilities enable it to provide a global reach to meet the critical, non-discretionary needs of its more than 5,000 customers across diverse industries and end markets to ensure compliance with environmental, health and safety laws around the world.  Chris Swinbank, appointed Chief Executive Officer of NRC Group at its formation, will continue to serve in that capacity post-closing.

Since the acquisition of NRC and Sprint by investment affiliates in 2012 and 2015, respectively, JFLCO worked successfully with each company’s management team to reinvigorate their core businesses, expand geographically and grow their service portfolio through both vertical integration and expansion into adjacent, complementary service offerings.  These organic growth initiatives were augmented by eleven strategic acquisitions which substantially increased NRC Group’s geographic footprint.

“We are proud of the growth and expansion that NRC Group has achieved over the past six years,” said Mr. Swinbank.  “J.F. Lehman & Company has been instrumental in helping solidify and grow our reputation and brand, augment and diversify our service capabilities, significantly expand our geographic footprint and recruit talent to our team.  We look forward to continuing this momentum as a subsidiary of a public company.”

Alex Harman, former Chairman and current Director of the Company and a Partner at JFLCO, added, “Our successful partnership with management has enabled the creation of a highly differentiated global business with significant opportunities for continued growth.  In addition, the sale of NRC Group represents an excellent outcome for our investors, whose support has been essential to our organization’s success.”

“We are looking forward to continuing our partnership with the Company’s senior management team to further accelerate the Company’s organic and acquisition-driven growth strategy,” said Glenn Shor, current Director of the Company and a Managing Director at JFLCO.

Stifel and Houlihan Lokey Capital, Inc. served as financial advisors to JFLCO and Jones Day and Blank Rome LLP provided legal counsel.

 

16 Oct 18. Thales and Gemalto are granted regulatory clearance from the competition commission in South Africa. Thales and Gemalto today announce that they have received Regulatory Clearance from the Competition Commission in South Africa. Together with the antitrust clearances obtained in China, Israel and Turkey, and clearances relating to foreign investments in Australia, Canada and the USA (CFIUS), Thales and Gemalto have now obtained 7 of the required 14 Regulatory Clearances.

16 Oct 18. Meggitt upgrades 2018 organic revenue growth outlook. British engineering company Meggitt (MGGT.L) raised its estimate for 2018 organic revenue growth to 7 to 8 percent from earlier guidance of 4 to 6 percent, boosted by higher demand for its wheels, brakes, fuel tanks and other aeroplane parts. The company stuck to its forecast for operating margins, but said that they would be at the lower end of its 17.7 percent to 18 percent range. (Source: Reuters)

15 Oct 18. Harris and L3 CEOs talk merger, divestitures and why we all should have seen this coming. If you ask Chris Kubasik, CEO of L3 Technologies, the company’s pending merger with Harris Corp. should not come as a surprise to anyone. Such a move made sense on paper for years, even if the timing was never quite right.

Now it is: Both companies are on an upswing, and both companies are led by individuals with an inclination to get it done. The result will be a deal — the largest defense merger in history, if you look at market capitalization — to create the seventh largest defense prime in the world. Defense News spoke to Kubasik and Bill Brown, the CEO of Harris, to find out more about the newly rechristened L3 Harris Technologies.

Chris, you called this an acquisition that many felt made sense. So what were the challenges to making it happen, and why is now the perfect time?

Chris Kubasik: I think in reality, people thought for years that this combination made sense. It was due to Bill and I working hard that we actually got it done.

I think that now is the perfect time because of the customer’s needs and demands for innovation and solution. Like I said, with the upswing in both companies, and both companies being strong, I think that gives us the opportunity to put this together, generate the cash and the synergies and position us for long-term value creation for our shareholders.

The challenges of all these acquisitions [are so often] culture and leadership. Here, the cultures are aligned. Bill and I are completely aligned. We’ve known each other for years. We have a clear understanding of roles and responsibilities.

We’re going to jointly chair the integration committee to make sure we get the best of the best — best people, best processes, best system. I’m sure I’ve never been more excited in my career than I am today, so it’s going to be a lot of fun. The stakeholders are all going to benefit.

Bill, how much was the 2015 acquisition of Exelis a building block toward this deal? Not necessarily a merger with L3 specifically, but really big merger that would really transform the company? Did you see this coming?

Bill Brown: I’ve been here for seven years, so we really started early on in developing a culture of operational excellence. I think that has been pretty well embedded within the company. We’ve made some good progress here. We’ve leveraged a lot of those tools, effectively integrating Exelis. We reached the cost savings targets we thought we would deliver and we delivered it a year early.

So I think we built a little bit of a muscle on how to do an integration. I think this is a great potential combination for us. It does position us well within the defense industrial based hierarchy. We’ll generate a lot of savings. But more importantly, the portfolio capabilities is going to allow us to do different things, to provide different capabilities to the war fighter and different things that are clearly laid out in the National Defense Strategy.

So as I look at this, it’s the right transaction. It’s the right time. It’s the right environment to do this. A lot of this comes down to the leaders of the organization, and Chris and I [are] completely aligned in what to do and how to create value.

So much of this also involves combining and integrating in a smart and efficient way, so should we expect any more divestitures? I know L3 just did a couple recently. Any more to come?

Brown: I think if you look at what L3 has done recently, and what we’ve done over the last five or six years, we both have taken a critical eye to the business portfolio we had. If there’s assets we think that are better owned by somebody other than [ourselves], we take a dispassionate view of that. And we transition those assets to a different owner.

I think Chris and I will take a look at that going forward. I think there will be [divestitures], given the diversity of the business mix we’ll have together. It does create the optionality for additional portfolio shaping. Nothing to mention today, but something we’ll be taking a close look at over the coming months and years.

Okay, so the couple of years before the transition, in terms of leadership — should I figure that those two years are going to be spent really establishing the integrated company?

Kubasik: Absolutely. The top two focuses of Bill and I and the team will be the integration, and continuing to execute on our existing programs and commitments. That is first and foremost. We’re going to generate a lot of cash. It’s going to take several hundred million dollars of investments to integrate these companies. Then the rest of the cash we’re going to maintain a competitive dividend, consistent with what we’ve done. We’re very similar in that regard. In the first year, we’re going to use the excess cash to repurchase shares. So the likelihood of acquisition from those first two years are very low.

As Bill said, we’ll look at the portfolio. We’ve clearly spent a lot of time together, but the next few months we’ll get into it more and more and see what makes sense. The way I sum it up is, the merger creates better benefits and growth opportunities than either company could have achieved alone.

I know both companies are incredibly strong in terms of C4ISR and a lot of what you might call the future warfare capabilities. What kind of growth do you anticipate in that area?

Brown: When I look at the next several years, you’re hitting on the right spot. When you look at C4ISR, it’s a broad category. When you look at the pieces underneath that, I think Chris and I, our companies, bring great capabilities [that are] complementary.

When you think about what we do at Harris, we’ve got a very strong position in tactical radios — global leadership, U.S. leadership. A lot of it’s ground, starting the movements to airborne tier, starting to provide systems. Chris’s business is very strong in avionics. It’s very strong in data links, very strong in satcom, very strong between the two of us in optical capability. When you look at all of that broad way of getting better ISR information, I think we bring the right capabilities to the fight.

Kubasik: We’ll be spending about 4% of our revenues on R&D, which I think is aggressive. And we talk about the customers, just to clarify — we have two sets. We have the usual industry partners, who I think will benefit from this combination, the same way that our end-user DoD customer will as well.

Are there any programs that you both were competing on, where there’s going to need to be some sort management to eliminate conflicts of interest?

Brown: Very, very small. It’s almost negligible in terms of where we compete head to head. Again, it’s a very complimentary set of businesses, so we don’t see that as being a big concern.

What kind of layoffs are you all anticipating?

Brown: We expect half a billion dollars of cost savings, and half of it is going to come from supply chain and facility rationalization — consolidating our mutual footprint. About half of that other half, so 25 percent, is split from corporate and segment overhead reduction in functional efficiencies, shared services — things that we’ve done and Chris is now driving at all three.

But we’re in a market today where the unemployment rate’s very low. We both were out there hiring people, trying to hire talented engineers and scientists, get people through clearances. So fortunately, we’re in an environment where we need more people, not fewer people.

Okay, so you think it’ll be relatively modest, getting rid of where there might be overlap?

Brown: There’s going to be some overlap. There’ll be some movement of people, but we’re not prepared to talk about any employment reduction today. But again, look, it’s an environment today where we’re looking for more people, especially in the STEM field.

The decision to make Melbourne, Florida the headquarters — will that be permanent?

Brown: Yeah, it’ll be as soon as we close. It’ll be the headquarters in Melbourne, and Chris is going to move to Melbourne. We have about 7,000 people in Brevard County. We’ve been there for 40 years, very deep, entrenched infrastructure.

If you know the area, a lot of the defense players, aerospace defense players, are moving now to the Space Coast. It’s a very vibrant community. Again, we’ve been there for a while. We’re deeply embedded into the community with a lot of infrastructure at Harris, so that’s what we decided to do.

Bill, I was convinced you guys were going to move to Washington for a while, but you proved me wrong.

Brown: You know, it’s interesting. Look, that came up for us, when we did Exelis, but Chris and I’ve talked about this. It just doesn’t make sense for both companies to move headquarters at the same time. That provides an additional risk in a deal. We thought we need to move to one place or the other. We both thought that Melbourne was a better place for the headquarters of the company.

Chris, you get to move again.

Kubasik: You know, it’s been a couple of years, time to move. I’m getting used to it, so if things slow down this week, maybe one night at 10:00 I’ll log onto a real estate website and try to be a first mover before the prices increase down there. [laughter]

I know you said in the next couple years no acquisitions would be on the horizon, but do you anticipate even more areas of business that would meld with those that you already play well in?

Brown: Look, I would say you started out the question the way I’d answer it, which is: it’s too soon to determine that. I think the next couple of years will be about integrating the companies. It’ll be about divesting. If we see opportunities for portfolio shaping, making sure that happens, so we stay focused on the business where strategically it makes sense for us to be in longer term. But I think Chris and I both have talked very publicly, individually as companies, about M&A is a part of our long-term growth strategy.

So over time, we do anticipate, under Chris’s leadership, that there’ll be other M&As that will happen over time. But I think in the next couple of years, unless it’s something exceptional, must have, we’re going to stand down on M&A and really focus on integrating the portfolios that we have.

Kubasik: Now the organic growth opportunities, and the beauty of having two leaders at the top, will allow us to focus on our customers, not only in D.C., but globally. And you know how much I love to travel internationally — we’re going to have customers in over 100 countries. I still look at that in amazement. We’ll be able to deepen those relationships. We both work in a lot of the same countries, but when you have a larger combined content, I think we’ll be able to advance internationally maybe further, quicker than we would have individually. So I think one of my focus areas is going to be to help grow the business and meet with those customers around the globe.

Chris I’ve spoken to you a couple of times on the big plans and aspirations to be a non-traditional six prime. You got there way faster than I thought you would.

Kubasik: Oh, thank you, I’m an impatient person.

I know you also said to me that you didn’t envision, and I quote, “building multi-billion-dollar satellites, airplanes and ships.” Does that vision of what the company is, and will be, as a six prime remain intact with this merger?

Kubasik: We don’t really have any major platforms, [but] when I look at the different domains that we’re going to be able to serve, whether it’s air, space, land or sea or cyber, that’s the exciting part. On the air side, as an example, on a combined basis we have some pretty exciting capabilities with avionics and electronic warfare, as an example. So we’ll be able to be on the legacy programs, like the F-16 and F-18, which we already are, and we’ll have more content on the next-gen platforms like an F-35.

So if we go domain by domain, you see the ability to better connect the different platforms to focus on the secured communication. I think we’re well positioned for the multi-domain, command and control and communication systems.

I’m excited about the small satellite business that Harris had. I think that’s great. You know about our UUVs, our UAVs. I think it’s going to work well in conjunction with the industry prime. It’ll be a collaborative, cooperative relationship.

Brown: I think we’re not a company that does or will do a lot of these big, major platforms that the big primes are doing today. The way we look at it, 72 percent of the combined business will be prime, meaning sales to and customers. I think that’s an important point to make.

Bill you’ve talked to me about space superiority. How key is space to the combined business?

Brown: We have a pretty broad business in space in terms of space superiority. A lot of it, it’s ground-based capabilities that provide offensive and defensive capabilities to that space architecture. We’ve developed a lot of exquisite systems and components that have now moved into end-to-end mission solutions for small satellites. We’ve got a lot of capabilities on our end, in optics. Chris’s business, L3, is also strong in small optics, and they’ve got really good signal intelligence capabilities that I think can augment the things that we do with some of the space architecture. So I see that as helping us continue to broaden that set of mission solutions in the space domain, that I think we spent the last several decades, actually, developing.

What does this merger mean to the top primes?

Brown: We have at Harris a great relationship with all of the primes. [We] do a lot of work particularly with Boeing and Lockheed. We do quite a bit now with Raytheon as well, so I think we have great partnerships, and I think if anything [this] is going to be additive to that partnership. I think it’ll be favorably received by those guys.

Kubasik: I agree a 100 percent. I think they’re going to be equally excited as the DoD customer for the same reasons. We’ll have the money to innovate the R&D, maybe bundle some solutions. They’ll also share over time in the affordability of this synergy. I think it’s a win-win for the industry and the DoD customers.

Bill, in two years you hand the CEO spot to Chris. I’m asking you to look at a couple years down the road, and I know you’re remaining on the board, but any other big plans?

Brown: Look, that’s three and a half years down the road. If I look at six months between sign and close – that’s a lifetime year, as you can imagine. I’ve been CEO here for seven years. That puts me 10 years at the company. I think with Chris, we’ll put the company together on the right track. Look, I’ll find something productive to do with my life at that point. (Source: Defense News)

15 Oct 18. Aussie tech company launches US subsidiary. Queensland-based technology company Megapulse has used the AUSA ‘18 expo in Washington to announce it is expanding its operations to the US with the opening of anoperation office in North Carolina over the weekend.

Ross Naddei, and daughter Natasha, of Megapulse Australia joined representatives of Chowan County, the NC EAST Alliance and Sound Bank to announce their decision to locate the company’s North American operations in a business incubator on the second floor of the bank in downtown Edenton, NC.

Megapulse owns multiple patents on clean-tech products that restore the efficiency and reliability of lead-acid batteries. The product extends the service life of batteries and maximises electrical system voltage, thereby reducing down time and failure events.

The technology can be used across a variety of environments where batteries are used, vehicles vessels and equipment place high demands on batteries, causing them to degrade faster. VEES and HD648 ensure you have reliable and efficient power for your on-board batteries and electrical systems on all applications on land and on the sea, by keeping batteries in ‘like new’ condition throughout their service life. (Source: Defence Connect)

14 Oct 18. L3, Harris CEOs: Merger Will Help Compete Against Top Contractors. L3 expects to depart its Manhattan headquarters and join Harris in Florida. What started as a social relationship between L3 Technologies CEO Chris Kubasik and Harris CEO Bill Brown led to Sunday’s announcement that the two firms intend to merge, creating a new $16bn aerospace company that would be one of the largest defense contractors in America. Brown, in a joint interview with Kubasik on Sunday, said talks between Harris and L3 began earlier this year, but “really picked up steam in the summer.” The executives expect the deal to close in mid-2019, if the government approves.

“We realized, given where we stack up in the defense hierarchy, this would be a great potential combination,” Brown said.

L3 will shrink or close its midtown Manhattan headquarters and move to Harris’ home base in Melbourne, Florida, where the merged entity will be called L3 Harris Technologies.

“We’ll be transitioning from the headquarters from New York and taking the best of the best and moving to Florida,” Kubasik said. “The short answer is: at some point the Manhattan office will either be significantly scaled down or ultimately closed.”

Harris’ Brown is expected to become chairman and CEO of the new L3 Harris. Kubasik, who took over as L3’s CEO only last January, will be president and COO. Two years after the deal’s closing, Kubasik is expected to be named CEO. A year after that, he is expected to add chairman to his title.

Based on 2017 revenue, L3 Harris would be the world’s seventh-largest defense firm, and the sixth-largest U.S. defense firm, according to the latest Defense News Top 100 rankings.

“[T]here are not a lot of major overlaps between Harris and L3,” said Byron Callan of Capital Alpha Partners, in a note to investors after the Wall Street Journal reported the merger on Saturday.

Callan noted that both companies have night vision and data-links businesses. Asked Sunday about overlapping sectors or possible divestitures, Brown said the companies have “very high and complimentary portfolios. So we see very, very, very little overlap.”

That portfolio is incredibly diverse. L3 is a major supplier of electronics and intelligence equipment for the Pentagon, everything from military training to special operations aviation software, submarine radar and sensors, ship-board targeting systems, and more. It also builds airport security systems. Harris supplies the Pentagon with tactical radios, satellite payloads, and electronic-warfare gear. It’s a major player in the FAA’s air traffic control modernization effort.

Kubasik had been looking to elevate L3’s profile though mergers and acquisitions. The company has had a keen interest in underwater drone technology, making a number of acquisitions over the past two-plus years. He said those acquisitions could slow in the wake of the Harris merger.

“Job one is going to be the integration for the first couple years, so there will be very, very few, if any, acquisitions,” he said Sunday. “They would have to be a once in a lifetime opportunity.”

A former senior defense official said the merger represents further consolidation in the defense industry’s second tier, a trend that the Pentagon watches closely. Brown said the companies alerted their U.S. government customers of the merger on Saturday. “Initial reaction, I think, was positive,” he said. (Source: Defense One)

11 Oct 18. Thales makes concessions to soothe EU’s Gemalto deal worries. Thales (TCFP.PA) has offered concessions to address European Union antitrust concerns over the French aerospace and defence firm’s 4.8bn-euro ($5.6bn) bid for chipmaker Gemalto (GTO.AS). In July, the European Commission began a full-scale investigation into the deal, which Thales hopes will make it a top player in digital security, saying that it could push up prices and reduce choices for customers. Thales, whose largest shareholder is the French state, said it had put concessions to the EU competition enforcer, after earlier disclosing talks with antitrust agencies.

“We have offered a remedy proposal to the European Commission on GP HSM (general purpose hardware security modules), which it will now test in the market. The next steps will depend on the outcome of this market test,” Thales said.

GP HSMs generate keys and encrypt and decrypt data. Companies are targeting growing demand for security services such as data encryption and biometric passports. The Commission, which is scheduled to decide on the deal by Jan. 8, declined to comment. Franco-Dutch Gemalto’s second-biggest shareholder is state-owned bank Bpifrance. (Source: Reuters)

11 Oct 18. Moog Australia to increase focus on aerospace and defence business. Moog Australia has announced that it has officially transitioned from Moog Industrial Operating Group to the company’s Space and Defence Group following a strategic review of the Australian market.

This move demonstrates Moog’s commitment and enhanced focus on support of the Australian defence strategy following close consideration of the Australian market and recognising developments in the Australian government’s defence strategy, which includes significant investment in upgrading legacy air, land and sea platforms and a desire for local manufacturing capability.

Jim Riedel, group vice president, Moog Space and Defense Group, commented, “While Moog Australia will continue to support the many markets across Moog’s businesses, this structural alignment with Space and Defense Group brings Moog Australia closer to dedicated, proven resources with a greater focus on defence manufacturing and sustainment capability in support of a number of Australian Defence Force platforms and systems.”

Moog is a worldwide designer, manufacturer and integrator of precision motion control products and systems. Moog’s high-performance systems control military and commercial aircraft, satellites and space vehicles, launch vehicles, missiles, industrial machinery, marine applications, and medical equipment.

Established in 1979, Moog Australia is a wholly owned subsidiary of Moog. As a Defence recognised supplier since 2003, Moog Australia has been actively supporting the efforts of Australia and New Zealand’s war fighters, peacekeepers and relief workers.

The company also supports all of the major defence prime contractors in Australia as a defence SME, providing design, development and production of the high performance actuation systems required to meet the harsh environmental and operational needs of the ADF.

“Moog has made a substantial contribution to Australian industry and the Australian Defence Force over the last 40 years. This new structure of operating group is a step that allows us to better serve key stakeholders in Australia. We are delighted to be part of Moog’s SDG organisation as it supports our interest to play an active role in the development of Australian sovereign capability requirements on future ADF platforms,” said Bryan O’Connor, managing director, Moog Australia.

Moog provides mission critical sub-systems and components on platforms including the F/A-18 Hornet and Super Hornet, UH-60 Black Hawk, AP-3C Orion, ASLAV, M113, Collins Class, and future aircraft including the F-35 Lightning II Joint Strike Fighter.

“The change also enhances Moog Australia’s position in potential expansion into the Asia-Pacific region, supporting the Australian government’s Defence Export Strategy aim of increasing global export,” Riedel said. (Source: Defence Connect)

16 Oct 18. Two Japanese heavyweights invest in Aerotropolis. The NSW Government has signed two international investment agreements with two of Japan’s biggest multinationals to establish a presence in the Western Sydney Aerotropolis. Mitsubishi Heavy Industries and the Sumitomo Mitsui Financial Group have signed two separate agreements with the NSW Government and committed to be a significant part of the Aerotropolis.

“It is so exciting that Mitsubishi Heavy Industries and the Sumitomo Mitsui Financial Group have decided to have such a large footprint in the Aerotropolis and we can’t wait to hear more about their plans,” NSW Premier Gladys Berejiklian said.

“It is not every day you get the chance to build a city from the ground up, but we know we are on the right track because, as we can see, international business confidence in the Aerotropolis is sky high.

“The Western Sydney Aerotropolis will be the heart of the Western Sydney Parkland City where there will be 200,000 jobs, the best educational opportunities and the highest quality lifestyle you can imagine.

“Federal, State and Local Governments are working together to make the Aerotropolis the most advanced city on Earth and now we are seeing the biggest companies in the world come on this journey with us.”

The latest investment agreements have been signed a month after the University of Newcastle, University of NSW and University of Wollongong, and Western Sydney University agreed to join forces and create a world-class, higher education institution at the Aerotropolis.

It also follows an announcement last year from global defence and aerospace company Northrop Grumman of a $50m investment in an advanced defence electronics maintenance and sustainment centre.

Minister for Western Sydney Stuart Ayres said the nation building activity of the Aerotropolis and Western Sydney Parkland City is attracting some of the biggest names in the game.

“It’s no wonder companies from NSW’s second biggest trading partner, Japan, are first in line to sign up to the Western Sydney Aerotropolis,” Mr Ayres said.

“The Japanese companies which have committed today will promote investment opportunities in transport, logistics, healthcare, education and renewable energy as well as other commercial, residential and community developments.”

Mitsubishi Heavy Industries (MHI) is a global heavyweight in aircraft, space, defence, transport, energy, maritime, automotive, industrial machinery and infrastructure. Sumitomo Mitsui Financial Group (SMFG Group) has a network of global clients across 40 countries and Sumitomo Mitsui Banking Corporation (SMBC) is one of Japan’s biggest banks managing a balance sheet in the trillions of dollars – more than the entire Australian economy. (Source: Google/westernweekender.com.au)

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Odyssey is an independent corporate finance firm which advises on acquisitions, business sales, management buy-outs and raising finance, typically in the £5m to £100m range.  We have extensive experience in the niche manufacturing sector with our most recent completed deal being the sale of MacNeillie to Babcock Plc. Details can be seen at:  http://www.odysseycf.com/case-study-macneillie/

As a result of this and related projects we have developed relationships with buyers and funders looking to acquire or invest in the sector.  We would be happy to share further insights into the sector and to carry out reviews of businesses whose shareholders are considering an exit, acquisition or fundraise.

The review will include:

* Valuation

* Market review

* Comparative deals and structures

* Initial thoughts on buyers/ investors/ targets

* MBO viability

* Feasibility review and identification of any issues to be addressed pre-deal

There is no charge for this review.

If this is of interest we would be happy to meet at your convenience.

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