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By Nick Wakeman

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Nick Wakeman

Harris-Exelis wins shareholder, DOJ approvals

What likely will be one of the biggest deals of 2015 is just one week away from closing now that the Exelis shareholders have approved the takeover of the company by Harris Corp.

The approval clears the way for the $4.75 billion transaction to close next Friday.

The Justice Department also has approved the merger by terminating the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

Exelis shareholders will get $16.625 in cash and 0.1025 in Harris common stock for each share of Exelis common stock. In the end, Harris shareholders will hold 85 percent of the stock in the combined companies, and Exelis shareholders will have 15 percent.

Harris has touted this deal as transformational since it was announced Feb. 6, and it is hard to argue with that based simply on the size of the combined companies.

The acquisition adds $3.5 billion in revenue, bringing Harris’ total to $8 billion. Harris’ earnings before interest, taxes, depreciation and amortization, commonly called EBITDA, will move from $1.07 billion to $1.58 billion. Head count also will grow from 14,000 to 23,000.

A big part of the rationale behind the deal is the scale Harris will gain, especially in the defense market.

There are also a lot of complementary capabilities coming together, particularly in the C4ISR area, air traffic management, advanced sensing and communications.

In its investor presentation, Harris lists several of what it calls “core franchises,” including weather, space and intelligence, air traffic management and tactical communications. The addition of Exelis will allow the company to bring greater scale and efficiency, optimize its research and development portfolio and deepen customer relationships.

As with any large acquisition, there will be challenges. First up will be reducing overhead costs. The company estimates reductions in the $100 million to $120 million. This will include facilities and eliminating public company costs. Some people will be involved in that as well.

Going forward, Harris will need to find the 2-plus-2-equals-5 type of opportunities. That will tell us how transformational the deal will be.

Posted by Nick Wakeman on May 22, 2015 at 9:32 AM

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