L3Harris to Shed as Much as 10 Percent of Company

L3Harris Technologies could divest up to 10 percent of the company, according to CEO Bill Brown, as its recent decision to sell its airport security business for $1 billion is seen as the first of more transactions expected to refine the firm’s portfolio.

L3Harris signed a definitive agreement to sell the business unit to Leidos, according to an announcement Tuesday. The transaction is expected to close in mid-2020, barring any issues tied to regulatory approvals. Proceeds from the divestiture are expected to be used to repurchase shares and offset dilution.

The deal is part of a larger strategy to reshape the portfolio, focusing on what Brown described on a call with analysts as “high-margin, high-growth, technology-differentiated businesses where we can win and generate attractive returns.”

“Although this is the first and largest transaction we’re contemplating, our portfolio-shaping process is ongoing and may ultimately result in 8-10 percent of total company revenue being divested over time,” he said.

The company’s 2019 revenue of $18.1 billion could translate to as much as $1.8 billion in divestitures.

Brown told Defense News in June 2019 — one month before the merger of Harris and L3 Technologies was completed — about plans to divest a “pretty significant” piece of the business in the first six months as a single company.

“Anytime you put two companies with two portfolios together and you rethink what strategy you want to accomplish, there’s going to be some pieces of the portfolio at the back end of the bus,” Brown said at the time. “We have to look at where we want to put our management time, capital, and [research and development] investment. We can’t put it on pieces that might not be as strategic.”

Brown told analysts that the deal would not impact the company’s $3 billion free cash flow target in 2022. That, in theory, would set up L3Harris for a sizable acquisition down the road, should the company choose to go in that direction.

A company spokesman could not comment on the specific defense-nondefense split post divestiture, but L3Harris would presumably see a larger slice of the business focusing on defense opportunities.

In the 2019 Defense News Top 100 list of the largest defense companies, Harris and L3 reported 72 percent and 81 percent of revenue as defense-focused, respectively.

L3Harris reported $18.1 billion in fiscal 2019 revenue. Once the deal with Leidos closes, the airport security businesses’ $500 million in annual revenue would transition off the books. That said, L3Harris is forecasting 5-7 percent revenue growth in 2020 — so it won’t be a straight reduction.

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