Harris Corporation to Acquire Exelis for $4.75 Billion

Harris Corporation and Exelis Inc. today announced a definitive agreement under which Harris will acquire Exelis in a cash and stock transaction valued at $23.75 per share, or an approximately $4.75 billion enterprise value. The agreement has been unanimously approved by the boards of directors of both companies.

The transaction is expected to close in June 2015 and is subject to customary closing conditions, including regulatory and Exelis shareholder approval.

Exelis is a global aerospace, defense, information and services company with a 50-year legacy. It was previously under the ITT Corporation umbrella, but spun off in 2011. Headquartered in McLean, Va., Exelis employs about 10,000 people.

Exelis employs about 10,000 people. the combined Harris/Exelis company will have about 23,000 employees. including 9,000 engineers and scientists.

One of Exelis’ biggest product offerings in the past year has been its Signal Sentry 1000, which detects and locates sources of intentional and unintentional interference to GPS signals and provides users with actionable intelligence. Exelis navigation payloads and components have been on board every U.S. GPS satellite ever launched and have more than 700 years of accumulated on-orbit success.

Harris is an international communications and information technology company serving government and commercial markets in more than 125 countries. Headquartered in Melbourne, Fla., the company has about $5 billion of annual revenue and 13,000 employees. Harris is engaged in a five-year contract with Aireon LLC that will create the first global satellite-based aircraft tracking system. The company’s Automatic Dependent Surveillance-Broadcast (ADS-B) 1090 Extended Squitter receiver payload has been successfully tested and qualified for simulated operation in the harsh environment of space for more than 12 years.

Under the terms of the transaction, Exelis shareholders will receive $16.625 in cash and 0.1025 of a share of Harris common stock, based on Harris’ closing price as of Feb. 5, for each share of Exelis common stock. Upon closing, Harris shareholders will own approximately 85 percent of the combined company, and Exelis shareholders will own approximately 15 percent. On a pro forma basis for the latest 12 months ended Dec. 31, 2014, the combined company would have had more than $8 billion in revenue and about 23,000 employees globally, including 9,000 engineers and scientists.

“Acquiring Exelis is transformational for Harris,” said William M. Brown, chairman, president and chief executive officer of Harris. “The combination of the two companies’ highly complementary core franchises creates a competitively stronger company with significantly greater scale. We are expanding in a market, where we have decades of success and a workforce dedicated to providing our customers with innovative and cost-effective solutions for some of their most complex challenges.”

“This agreement to become part of Harris Corporation represents an exciting new chapter for Exelis,” said David F. Melcher, chief executive officer and president of Exelis. “Combining the companies not only creates shareholder value, but the commitment to excellence and innovation that both companies share will significantly benefit customers and provide new opportunities for employees.”

Melcher also noted, “Our 2014 was another strong year, and we expect to report revenue of approximately $3.25 billion and adjusted operating margin between 12.4 and 12.5 percent, which is in line with our previous guidance.” Exelis indicated that approximately $25 million of its anticipated free cash flow for 2014 shifted into 2015 due to some delayed collections, but that its estimate for 2015 free cash flow is being increased to approximately $275 million. Exelis also expects depreciation and amortization of approximately $106 million in 2014, net debt of $139 million and a net unfunded pension liability of approximately $1.9 billion at the end of 2014. Exelis ended the year with an estimated $2.8 billion in funded backlog.

Integration plan. Harris said it has developed a detailed execution plan to ensure seamless integration and achieve identified cost synergies. The dedicated integration team will have executive leadership and be comprised of senior members of both organizations. Harris is confident in its ability to effectively combine these two companies and provide the organizational alignment to achieve full strategic value, the company stated in a news release.

At the 2014 ION GNSS+ Conference Sept. 9-12 in Tampa, Fla., Lori Thompson of Exelis provided GPS World readers with updates about the company’s activities.