Why L3Harris' CEO expects approval for proposed $4.7B Aerojet buy

MediaNews Group/Los Angeles Daily News via Getty Images.

L3Harris Technologies is poised to present a different position for why it should be allowed to buy Aerojet Rocketdyne.

L3Harris Technologies believes it will get a different outcome regarding its agreement announced Sunday to acquire Aerojet Rocketdyne, the propulsion systems maker whose attempted sale to Lockheed Martin faced antitrust opposition.

L3Harris has agreed to pay roughly $4.4 billion in cash, or $58 per share, in a transaction with an enterprise value of $4.7 billion. The latter figure includes Aerojet's debt that L3Harris will assume after the close, which all parties expect to be sometime in 2023.

Acquirers tend to give out the quarter during which they expect to close their purchases. But that broad timeline L3Harris gave for this instance certainly has the regulatory landscape for the defense industrial base in mind.

Large mergers and acquisitions involving blue-chip defense hardware companies typically take anywhere between 12 and 18 months to get antitrust approval to begin with.

In January, the Federal Trade Commission sued to halt Lockheed's proposed $4.4 billion acquisition of Aerojet on antitrust grounds.

The FTC claimed other large defense hardware companies that buy solid rocket motors and other parts from Aerojet would be harmed by that transaction, which Lockheed first revealed its intent on in December 2020.

Aerojet's financial filings indicate nearly 32% of sales for the first nine months of this year were to Lockheed. Another 21% of those sales are to Raytheon Technologies, which objected to Lockheed's move for Aerojet.

Lockheed argued that having Aerojet in the fold would speed up weapons production, but exited the transaction agreement in February in the face of that FTC opposition.

This brings us to why L3Harris believes it can get an acquisition of Aerojet over that antitrust hurdle when the last attempt did not find regulatory favor.

During an interview with CNBC on Monday, L3Harris CEO Chris Kubasik said one of the factors the government will look at in this instance and see this is more of a horizontal move on the buyer's part.

"Weapons systems, space propulsion, no overlap, no vertical integration—and then they're going to look at the concept of merchant supplier," Kubasik said. "It's an interesting term, it basically means will you sell your products to whomever you need to."

"We're going to maintain it, we absolutely want to sell these to the primes, to the [original equipment manufacturers], to the end user," Kubasik added.

Improving the supply chain and other aspects of Aerojet's operational performance will also be on the agenda for L3Harris, an item Kubasik addressed in the interview.

As for L3Harris itself: the company is also moving to close its $1.96 billion acquisition of the Viasat tactical data links product line next year. With that and Aerojet in the fold, L3Harris sees itself as breaking the $20 billion annual revenue mark on a pro forma basis with at least 50,000 employees.

That Sixth Prime strategy Kubasik has touted for nearly five years running continues to go forth.

More on the agreement itself

At $58 per share, the cash portion of the transaction represents a premium of 37% over what Aerojet calls in investor documents its unaffected stock price of $42.49 on Aug. 15. On that date, activist hedge fund Elliott Investment Management disclosed its ownership of 3.7% of the stock in Aerojet.

Elliott is the same investor that built up a stake in Cubic Corp. and then teamed up with private equity firm Veritas Capital to acquire that defense and transportation company for nearly $2.4 billion in cash in 2021.

Prior to Monday's opening bell, shares in Aerojet had climbed 17% on a year-to-date basis to a price of $54.89 on Friday giving the company a market capitalization of $4.4 billion. Aerojet is touting this latest agreement with L3Harris as at a 14% premium over Lockheed's proposal on a per-share basis.

Aerojet is also subject to a so-called "no solicitation" clause in the agreement, which means the company and its financial advisers cannot seek proposals from any party that would want to trump L3Harris' offer.

But if another bid comes in that Aerojet's board considers a superior proposal, they have to notify L3Harris within 48 hours of receipt. Going forward with another acquirer means Aerojet would have to pay a $95.6 million termination fee. That payment applies in other circumstances, such as a change in recommendation from Aerojet's board for other reasons.

L3Harris will have to pay Aerojet a $406.3 million breakup fee if the transaction cannot get antitrust approval. The agreement has other scenarios where L3Harris would be subject to that payment if it were to back out. Aerojet did not get such a payment from Lockheed when their agreement was terminated.

Barclays and Goldman Sachs are working as financial advisers to L3Harris, while Simpson Thacher & Bartlett LLP is the legal adviser on the buy side. Citi and Evercore are acting as co-lead financial advisers to Aerojet. Wachtell, Lipton, Rosen & Katz is the legal counsel to Aerojet.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.