13 Oct 18. The FT reported tonight that L3 and Harris are in talks for a $33bn military electronics deal. The deal would unite two of the main US providers of defence electronics and communications technology.
L3 Technologies and Harris Corp are in advanced talks to merge in an all-stock deal that would combine two of America’s biggest defence electronics groups with a market value of more than $33bn, people briefed about the matter said. The companies plan to announce the deal on Sunday or Monday morning at the latest, those informed about the talks said. New York-based L3, which has a market value of $15.3bn, provides communications systems and electronics for the US military and other clients, including the UK government. Harris Corp, which has an equity value of about $18bn, provides communications systems and electronics for military and civilian uses such as air-traffic control. Both L3 Technologies and Harris did not respond to a request for comment. The talks come amid increased consolidation in the aerospace and defence industry, driven by rising defence budgets and a boom in commercial aircraft sales. Last year United Technologies agreed to buy Rockwell Collins for $23bn in a deal to create one of the world’s largest makers of aircraft equipment. Earlier this week, TransDigm Group agreed to take over aerospace parts maker Esterline Technologies for $4bn, including debt. Earlier this year, US defence contractor General Dynamics agreed to acquire IT and cyber security group CSRA for $9.6bn and defence group Northrop Grumman agreed to buy rival Orbital ATK for $9.2bn. The proposed acquisition also marked the third major deal among aircraft suppliers in less than a year.
Just a few months before that deal was announced Rockwell completed its $8.6bn acquisition of B/E Aerospace, which gave the company — best known for its electronic communication and avionic systems — a presence in cabin interior systems such as seats, galleys and lavatories. Also in 2017, French aero-engine maker Safran agreed to purchase French aerospace equipment maker Zodiac for €8.7bn including debt. One of the main drivers behind the wave of deals has been US President Donald Trump’s promise to increase military spending. The move has galvanised executives to strike major deals in an attempt to win greater market share in the fast growing sector. In the UK L3 is the prime contractor on the sensitive Airseeker surveillance and reconnaissance aircraft. Under the Airseeker agreement that the UK signed in 2010 the country purchased three Rivet Joint aircraft for conversion by L3.
L3 chief executive Christopher Kubasik has sought to create a more formidable challenger to some of its larger rivals, including the likes of Boeing, Lockheed Martin and Northrop Grumman, and position the group as the sixth major global defence contractor. To do that, Mr Kubasik told an investor conference last December that the company would shift its investment to acquisitions from share repurchases. “We’ll constantly add elements through the acquisition,” he said. “As a portfolio, you’ve got to see what’s out there and what’s opportunistic. The key is putting the pieces together to move up the food chain.” (Source: FT.com)
BATTLESPACE Comment: BATTLESPACE has had comments from a number of sources over the past year that Harris was cutting back on publicity and advertising, also witnessed by BATTLESPACE where support for our publication has been cut to the bone. No doubt Harris was cutting overheads to position itself for this merger which will create a huge international military and civil technology, night vision, ATC, radar and communications business with a presence in many countries. Harris put itself up for sale post-9/11 and found no buyers and then bulked up with the purchase of ITT Exelis in 2015. This merger will have significant implications in the UK in particular as the size of the new entity and its technology will provide a big competitor to GDUK for the Morpheus Programme and night vision programmes in the UK and the US, where competition will now be reduced to Harris/L-3 and Leonardo DRS and smaller entities.
This merger may well spur more consolidation in the military communications industry with maybe the possibility of the Thales – Leonardo merger, mooted some years ago, being back on the table? It will also put other Tier One companies such as Rhode & Schwarz and the recently formed Hendsolt in the spotlight.