M&A

L3Harris makes plans for divestitures

And they could be major

Four months out from the megamerger to create it, L3Harris Technologies sounds like it has made some decisions on which businesses to keep and those it will not.

During L3Harris’ third quarter earnings call Wednesday, CEO Bill Brown told investors the defense company has “begun marketing several businesses that we’ve assessed as non-core.”

Brown said it is an ongoing process and did not divulge much more than that, other than to say the “plan is to announce transactions as they occur and use the net proceeds to repurchase shares to offset dilution.”

Those potential sales, Brown told analysts, are part of L3Harris' work on "reshaping our portfolio to focus on high margin, high growth technology differentiated businesses where we can win and generate attractive returns."

Alongside general integration activities, a portfolio review was high on L3Harris’ to-do list since the merger of Harris Corp. and L3 Technologies closed in June to create the defense market’s so-called “Sixth Prime.”

While certainly cryptic now, both Brown and Chief Operating Officer Chris Kubasik (formerly L3's CEO) have been open about the fact that post-merger divestitures are a certainty. Kubasik told Defense News in June such transactions "will be pretty significant" -- whether that be via several small deals or a larger sale or spinoff.

“What I'm very encouraged about is the fact that in a relatively short period of time, I think we've aligned across the management team and with the board on how we're thinking about the portfolio. We're moving quickly on a number of different businesses,” Brown said Wednesday.

The Harris side of the merger has been through that same process. Harris closed its acquisition of Exelis in 2015, then gradually sold off other pieces of its business to hone the technology platform core. Most notably, Harris divested the IT services division in 2017 to Veritas Capital and that business is now Peraton.

L3 Technologies became an active acquirer again under the leadership of Kubasik. Last year, the company made four acquisitions prior to the announcement of the deal with Harris. Those came after L3 closed the sale of three aerospace businesses including Vertex to a private equity firm.

L3 also divested most of its government services work in a strategy like Harris' but in a pair of transactions: first a 2012 spinoff to create Engility Corp. and then the 2016 sale of the former National Security Solutions business to CACI International.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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