Harris Corp. to acquire Exelis for $4.75 billion; combined company to make $8 billion annually

MELBOURNE, Fla., 6 Feb. 2015. Officials at Harris Corp. (NYSE:HRS) and Exelis Inc. (NYSE:XLS) have signed a definitive agreement under which Harris will acquire Exelis in a cash and stock transaction valued at roughly $4.75 billion. The Boards of Directors of both companies have unanimously approved the transaction, which is expected to close in June 2015 and is subject to customary closing conditions, including regulatory and Exelis shareholder approval.

Feb 6th, 2015
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MELBOURNE, Fla., 6 Feb. 2015. Officials at Harris Corp. (NYSE:HRS) and Exelis Inc. (NYSE:XLS) have signed a definitive agreement under which Harris will acquire Exelis in a cash and stock transaction valued at roughly $4.75 billion. The Boards of Directors of both companies have unanimously approved the transaction, which is expected to close in June 2015 and is subject to customary closing conditions, including regulatory and Exelis shareholder approval.

Exelis ARC radio

Upon closing, Harris shareholders will own approximately 85 percent of the combined company, and Exelis shareholders will own approximately 15 percent. On a pro forma basis for the latest 12 months ended 31 Dec. 2014, the combined company would have had more than $8 billion in revenue and about 23,000 employees globally, including 9,000 engineers and scientists.

"Acquiring Exelis is transformational for Harris," affirms William M. Brown, chairman, president and chief executive officer (CEO) of Harris. "The combination of the two companies' highly complementary core franchises creates a competitively stronger company with significantly greater scale. We are expanding in a market, where we have decades of success and a workforce dedicated to providing our customers with innovative and cost-effective solutions for some of their most complex challenges."

"This agreement to become part of Harris Corporation represents an exciting new chapter for Exelis," adds David F. Melcher, chief executive officer and president of Exelis. "Combining the companies not only creates shareholder value, but the commitment to excellence and innovation that both companies share will significantly benefit customers and provide new opportunities for employees.

“Our 2014 was another strong year, and we expect to report revenue of approximately $3.25 billion and adjusted operating margin between 12.4 and 12.5 percent, which is in line with our previous guidance," Melcher says.

Exelis Advanced Integrated Defensive Electronic Warfare Suite (AIDEWS) is designed to provide state-of-the-art electronic warfare (EW) suites for self protection and situational awareness.


Approximately $25 million of Exelis’s anticipated free cash flow for 2014 shifted into 2015 due to some delayed collections, but that its estimate for 2015 free cash flow is being increased to approximately $275 million. Exelis also expects depreciation and amortization of approximately $106 million in 2014, net debt of $139 million and a net unfunded pension liability of approximately $1.9 billion at the end of 2014. Exelis ended the year with an estimated $2.8 billion in funded backlog.

Based on an expected June 2015 closing, the transaction is expected to be slightly accretive to Harris in the first full year and a significant contributor thereafter. Harris has identified estimated net pre-tax cost synergies from the combination in a range of $100 million to $120 million, with savings expected to achieve annual run-rate in year three. Savings are expected from consolidating headquarters and eliminating public company costs and from operational and functional efficiencies.

Harris has secured $3.4 billion of fully committed bridge financing from Morgan Stanley Senior Funding Inc. and expects to put in place permanent financing in the form of term loans and unsecured bonds prior to closing. Following the transaction, Harris expects to continue to have a solid balance sheet supported by strong free cash flow from the combined business, enabling it to pay down debt rapidly.

Exelis radar simulator

Harris has developed a detailed execution plan to ensure seamless integration and achieve identified cost synergies. The dedicated integration team will have executive leadership and be comprised of senior members of both organizations. Harris is confident in its ability to effectively combine these two companies and provide the organizational alignment to achieve full strategic value.

Morgan Stanley & Co. LLC is acting as financial advisor to Harris Corporation and Sullivan & Cromwell LLP is serving as principal legal counsel. J.P. Morgan Securities LLC is acting as financial advisor to Exelis, and Jones Day is serving as legal counsel.


The Exelis GCA/PAR Airport Surveillance Radar (ASR) / Precision Approach Radar (PAR) System provides high performance target detection in the airspace around an airport or air base.

Harris is an international communications and information technology company serving government and commercial markets in more than 125 countries. Headquartered in Melbourne, Florida, the company has approximately $5 billion of annual revenue and about 13,000 employees — including 6,000 engineers and scientists. Harris develops assured communications products, systems, and services.

Exelis is a diversified, top-tier global aerospace, defense, information, and services company that leverages a 50-year legacy of customer knowledge and technical expertise to deliver affordable, mission-critical solutions for global customers. Exelis provides positioning and navigation, sensor, air traffic management solutions; image processing and distribution; and communications and information systems. The company is focused on strategic growth in the areas of critical networks, ISR and analytics, electronic warfare, and composite aerostructures.

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