US communications specialist Harris Corp acquires Exelis for $4.75 bn

US communications specialist Harris Corporation is buying Exelis Inc, a leading provider of mission-critical solutions for aerospace and defence, for approximately $4.75 billion in a cash-and-stock deal, in its bid to emerge a major satellite and defence contracting giant with annual revenues of over $8 billion.

Under the terms of the deal, Exelis shareholders will get $16.625 in cash and 0.1025 shares of Harris for each share they own, based on Harris' closing price as of 5 Feb 2015, the companies said in a joint statement.

Virginia-based Exelis, which was spun off from ITT Corp in 2011, is a diversified, top-tier global aerospace, defence, information and services company delivering mission-critical solutions for global customers. 

The company is a leader in a range of technology and surveillance products including positioning and navigation, imaging and analysis, air traffic, electronic warfare and employs approximately 10,000 people.

Exelis' clients include the US defence department and intelligence agencies, the National Aeronautics and Space Administration, and the Federal Aviation Administration among others.

Further to the news of the transaction, shares in Exelis jumped 36 per cent to close at $24.13 yesterday in New York, while Harris stock ended at $76.18, up 10 per cent.

Harris, headquartered in Florida, is one of the very few companies focused exclusively on developing the most ecure voice, data and video networks. The company provides 'assured communications' solutions to government and commercial customers in over 125 countries.

Harris' annual revenue is around $5 billion and it has about 13,000 employees nearly half of which are engineers and scientists.

Harris chairman and chief executive officer William M. Brown said, "Acquiring Exelis is transformational for Harris. The combination of the two companies' highly complementary core franchises creates a competitively stronger company with significantly greater scale.''

The deal, unanimously approved by the directors of both the companies' boards, is expected to close in June 2015, subject to customary closing conditions and regulatory approvals.

Further to the closing, Harris shareholders will own about 85 per cent of combined entity, while shareholders of Exelis will own the remaining 15 per cent.

Harris intends to fund the acquisition through a $3.4-billion bridge loan from Morgan Stanley Inc and unsecured bonds.

The transaction is expected to be accretive to Harris' earnings in the first full year post-closing. The company expects cost synergies in the range of $100-$125 million in the third year.

The savings will be achieved through consolidating headquarters and eliminating public company costs and improving operating efficiency, Harris said.

Exelis chief executive officer David F. Melcher commented: "This agreement to become part of Harris Corporation represents an exciting new chapter for 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," he added.

For the year ended December 2014, Exelis reported revenue of $3.25 billion with an operating margin of around 1.25 per cent.

The company had a debt of $139 million and net pension liability of approximately $1.9 billion at the end of the year.

Morgan Stanley & Co LLC is acting as financial advisor to Harris Corporation while JP Morgan Securities LLC is acting as financial advisor to Exelis, on the deal.