Tyco buy lays new roadmap for Harris

Communications equipment and services provider Harris Corp is buying Tyco Electronics Wireless Systems for $675 million in cash, expanding its footprint in the $9 billion federal land mobile radio market.

The wireless unit, formerly known as M/A Com, supplies wireless communications systems to law enforcement, fire and rescue, and public service organizations. The unit had 2008 revenue of $461 million.

The acquisition “makes Harris’s land mobile radio business a formidable competitor to market leader Motorola,” said SunTrust Robinson Humphrey director Chris Donaghey.

“While Motorola is the 900-pound gorilla in the space,” investment analyst Collins Stewart LLC agreed in a research note, the merger is a complementary acquisition that leverages Harris RF Communications division’s “strong international sales channel and military presence with M/A-Com's substantial domestic installed base.”

Harris recently entered the market with its Unity product line, looking to capitalize on its success in military tactical radios. Returns won’t be immediate, however, the company warned. Harris predicted that the acquisition would be a "significant contributor to earnings in fiscal 2011 and 2012.”

Raising a dissenting voice were Investment counselors at Cowen and Co., calling the deal an apparent “suboptimal use of cash.” A difficult growth environment in the state and local market, the increase in debt as a result of the acquisition and a likely soft demand for Harris’s legacy communications products could be problematic, Cowen analysts suggest.

Last year, despite its protestations to the contrary, Harris was widely viewed as a takeover target. As recently as last month, the company was actively looking for takeover candidates, Reuters reported.

With Harris’s acquisition of Tyco’s wireless business however, it appears that Harris is not for sale, Cowen and Co. investment analysts said. Further, the sale “may deter prospective acquirers from making a bid for the company until the M/A Com integration is a proven success.”

In 2007, Harris bought Multimax Inc. and Stratex Networks Inc., and last year bought broadcast software developer DesktopBox Inc. The Multimax acquisition has helped Harris expand into new markets, said Harris exec Dan Pearson in an interview last week. Pearson is group president of Harris Government Communications Division.

The DesktopBox software is being integrated into other Harris products. And amid disappointing returns, even more disappointing restatements — downward — of earnings going back several years, and shareholder dissatisfaction, Harris Stratex will be spun off, the company announced this month.

In addition to the Tyco buy, however, Harris on Thursday announced it had closed on another acquisition: cybersecurity company Crucial Security Inc.

Although Harris is not actively shopping for companies to buy, it will “continue to buy capabilities where it makes strategic sense,” Pearson said before the Tyco announcement.

Harris ranks No. 13 on Washington Technology’s 2008 Top 100 list of the largest federal prime government contractors.