Integration, portfolio review high on L3 Harris' to-do list

Both sides of the megamerger of L3 Technologies and Harris Corp. merger have a lengthy to-do list to make that deal work with job one of closing the transaction behind them: that got done on June 29.

Also done is creating the new board of directors, plus the overall business and management structure of the defense market’s new “sixth prime.” Now comes the hard work of integration and more decisions on where and who L3 Harris wants to be in the market with respect to its portfolio.

That process of reviewing its now-$18 billion revenue portfolio is active and a “top priority for the management team,” L3 Harris CEO Bill Brown said in an earnings call Wednesday.

“A broader mix of businesses gives us an opportunity to take a fresh look at the combined company portfolio and really think about what fits, what doesn’t fit, (and) certainly gives us some optionality to do some things with businesses that we no longer consider strategic,” Brown told analysts.

As active as they had been on acquisitions, L3 and Harris were just as aggressive in divesting businesses they saw as no longer in their core. Both are among a long list of defense companies that have largely exited government technology and professional services to gain greater focus on making their own products and platforms.

L3 spun out one government services business in 2012 to create Engility Corp., sold another to CACI International in 2015 and divested three aerospace services units last year. Harris sold the government IT business now known as Peraton to Veritas Capital two years ago and before that divested some commercial units.

Those divestitures helped lay some groundwork for L3 and Harris to see their merger as more attractive and could help make the new portfolio review simpler. In a June interview with Defense News at the Paris Air Show, Brown and L3 Harris Chief Operating Officer Chris Kubasik said divestitures are a near-certainty either through a series of smaller sales or fewer, larger transactions.

"We haven’t decided what that is, but it’s going to be an important step in the first six months post close. It will be pretty significant,” Brown said.

“Both of us having divested our services businesses well before this was signed gives us a head start,” Kubasik said.

During the analyst call, Brown described the “couple of different lenses” management is using to make decisions on portfolio reshaping.

“Certainly one is does the business have technology that’s required by differentiation. Can we deliver good returns, can we grow and win, gain share, and we’re going to evaluate what businesses we’re in based on those metrics,” Brown said.

Brown added he and Kubasik are “working very hard on this (and) we’re engaging our board of directors on this as well.”

“It’s really top of mind to us.”