Harris Merging with L3 to Create Huge Defense Contractor

Congress passed its 2018 National Defense Authorization Act representing an increase of 18% in its defense spending.

L3 Technologies and Harris Corporations have agreed to a merger of all stock of equals creating the sixth largest U.S. defense contractor with sales annually exceeding $16 billion, said the two companies on Sunday.

This deal marks the latest example of how higher spending in defense by current U.S. President Donald Trump and a Congress that is Republican led is driving defense contractors to merge so they hold more scale in order to bid on larger projects, spanning from upgrades on outdated computer systems to exploration in space.

The deal for all-stock gives L3 a value of $15.7 billion which is slightly higher than the company’s market capitalization as of Friday’s close on Wall Street of $15.3 billion.

The deal will create a defense electronics and communications giant with a $34 billion market value.

The merger comes following several deals the last 18 months amongst different defense contractors. In 2017, United Technologies acquired Rockwell Collins in a deal for $30 billion while in March TransDigm continued its spree of acquisitions by acquiring Extant Components Group for $525 million.

An increased budget in U.S. defense and a budget deal for two years reached in early 2018 that lifted the caps on spending in defense have encouraged mergers.

The new combined entity, to be called L3 Harris Technologies Inc., will for the time being until another merger, be the sixth largest U.S. based defense company and a top 10 worldwide defense company with an estimated 48,000 employees and customers in more than 100 countries, said the two companies in a joint statement.

It is expected that the new company will generate as much as $16 billion in revenue with a $2.4 billion EBITDA and free cash flow exceeding $1.9 billion, the joint statement said.

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