Harris Corporation will acquire Exelis for an approximate $4.75 billion at $23.75 per share, the companies announced in a joint statement today.
The agreement has been unanimously approved by the Boards of Directors of both companies. The transaction is expected to close in June 2015 and is subject to customary closing conditions, including regulatory and Exelis shareholder approval.
As per the agreement, Exelis shareholders will receive $16.625 in cash and 0.1025 of a share of Harris common stock, based on Harris' closing price as of February 5, 2015, for each share of Exelis common stock.
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 twelve months ended December 31, 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.
"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," said William M. Brown, chairman, president and CEO of Harris.
"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," said David F. Melcher, chief executive officer and president of Exelis.
Melcher also noted, "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. "Exelis indicated that approximately $25 million of its 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.
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.